Individual investors seeking to generate reliable monthly income from their portfolios often turn to securities such as bonds, money market funds and certificates of deposit (CDs) for interest and dividend payments. Individual stocks can also be a good place to look for regular dividend payments, as many companies deliver yields far above what is currently being offered by Treasurys and CDs. Stock dividends, however, carry two additional levels of risk that must be considered.
First, stock dividends do not carry the Federal Deposit Insurance Corporation (FDIC) protection that protects CDs and bank accounts. FDIC insurance guarantees investor deposits if a bank or credit union declares bankruptcy or becomes financially insolvent. Dividends from stocks offer no such guarantee. The company issuing the dividend can reduce or eliminate the dividend at any time.
Second, to earn the dividend payment, investors still need to make investments in the underlying stock. Stocks are generally considered riskier than bonds or bank products, and principal balances can fluctuate over time. Searching out only the largest and most stable companies can help reduce the unpredictability of dividend payments, but the underlying value of the stock investment still has the potential to gain or lose money.
There are many companies that have been paying regular dividends for decades. The title of dividend aristocrat is given to those companies that have raised their annual dividend payments for at least 25 consecutive years. There are over 100 companies considered to be dividend aristocrats, and several of them offer yields well over 4%. The following are three blue-chip companies that own the dividend aristocrat title, have been in business for decades, and offer steady and growing dividends.
Utility companies are popular among income-seeking investors due to their above-average dividend yields. Given the steady and constant demand for utility services along with relatively little competition within the sector, utilities are able to pay out much of their net income back to investors in the form of dividends.
AT&T (NYSE: T) is the global telephone and television giant that has been in business for 130 years. In a sector that often produces above-average yields, AT&T's dividend stands out as one of the highest. As of Oct. 21, 2015, AT&T pays an annualized yield of 5.6% and pays its dividends on a quarterly basis.
Philip Morris International, Inc.
Philip Morris International (NYSE: PM) is the global manufacturer of tobacco and cigarette products; it was spun off from its parent company Altria Group in 2008. Due to the very nature of its business, the company has been exposed to much litigation and legislation surrounding its products. Despite this controversy, the company has continued to generate tens of billions of dollars in revenue annually.
While Philip Morris does not yet have the history to qualify as a dividend aristocrat, Altria Group has been raising its dividend for 46 straight years. As of Oct. 21, 2015, Philip Morris pays an annualized yield of 4.6% and pays its dividends on a quarterly basis.
Oil companies also make for popular dividends stocks for much the same reason as utility stocks; there is always demand for oil and gas. The strength of oil companies often depends on oil prices, which can make these stocks potentially more volatile, but historically, oil companies have been big revenue and cash flow generators.
Chevron Corporation (NYSE: CVX) is an energy giant that engages in the exploration, development and refinement of crude oil, natural gas and other energy products. Chevron pays an annualized yield of 4.7% as of Oct. 21, 2015, making it one of the top dividend yields in the industry. It pays its dividends on a quarterly basis.
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