The rest of the story
Although there have been some speed bumps along the way, such as the great recession, all three of these companies have a long history of delivering earnings growth. This is vital in order to provide significant, long-term annual dividend increases. The following chart illustrates their financial results over the last decade:
| 2012 revenue | 10-yr share price growth | 10-yr revenue growth | 10-yr earnings growth | 10-yr dividend growth | Dividend yield | Current P/E | Payout ratio | |
| WAG | $71.6billion | 74% | 120% | 81% | 350% | 2.5% | 22.4 | 48% |
| ITW | $17.9 billion | 128% | 89% | 181% | 245% | 2.1% | 13.8 | 28% |
| AOS | $1.94 billion | 311% | 27% | 204% | 140% | 1.2% | 24.9 | 24% |
A decade ago, Walgreen Company (NYSE:WAG)’s dividend yield was 0.6%, Illinois Tool Works Inc. (NYSE:ITW)’s was 1.4%, and A. O. Smith Corporation (NYSE:AOS)’s was 1.9%. However, if an investor would have purchased shares of these companies 10 years ago and held them until today, their effective yield based on the initial purchase price would have been 3.7% for Walgreen, 4.5% for Illinois Tool Works, and 4.6% for A. O. Smith Corporation (NYSE:AOS). This is an example of how your effective yield will grow over time when investing in dividend achiever companies. All four of these companies have relatively low payout ratios, and I anticipate strong future dividend growth from them.
Walgreen Company (NYSE:WAG)’s dividend growth has been excellent, but its 2012 earnings were adversely affected by costs related to its efforts to expand globally. However, these efforts should pay off substantially in upcoming years and as a result, I believe that Walgreen is well positioned for the future.
Illinois Tool Works Inc. (NYSE:ITW) has performed nicely over the last decade and this outstanding performance should continue due to its strategy to focus on its best performing business segments and sell the others. In addition, its stock price is attractive now with a P/E of only 13.8.
A. O. Smith Corporation (NYSE:AOS) is a much smaller company than Walgreen and Illinois Tool Works. As a result it has the potential for higher growth, which is indicated by its higher P/E. Its decision to focus only on water technologies should pay off substantially in the future.
The Foolish summary
Components of the dividend achiever index are growing and reliable shareholder friendly businesses that can significantly reward patient investors over the long term. Walgreen, Illinois Tool Works, and A. O. Smith Corporation (NYSE:AOS) are three excellent dividend achievers that are worthy of being included as part of a diverse, well-managed portfolio.
The article Dividend Achievers for the Long Haul, Part 3 originally appeared on Fool.com and is written by Greg Williamson.
Greg Williamson owns shares of Walgreen Company and Illinois Tool Works. The Motley Fool recommends Illinois Tool Works. Greg is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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