Updated on July 20th, 2021 by Bob Ciura
Income investors might be tempted to buy stocks with the highest dividend yields. But this is often a mistake, as extreme high-yielding stocks are often in dubious financial condition. While high yields are important, we believe it is equally important to focus on quality.
One way to measure the quality of a dividend stock is by its dividend history. We believe stocks with established histories of dividend growth, are more likely to continue growing their dividends moving forward. This is why we focus on groups of stocks with long histories of increasing their dividends, such as the Dividend Aristocrats.
Meanwhile, investors should also look over the list of Dividend Contenders, which have raised their dividends for at least 10 years in a row.
With this in mind, we created a downloadable list of 312 Dividend Contenders. You can download your free copy of the Dividend Contenders list, along with relevant financial metrics like price-to-earnings ratios, dividend yields, and payout ratios, by clicking on the link below:
This article will discuss an overview of Dividend Contenders, and why investors should consider quality dividend growth stocks. Additional information regarding dividend stocks in our coverage universe can be found in the Sure Analysis Research Database.
Table of Contents
You can instantly jump to any specific section of the article by clicking on the links below:
- Overview of Dividend Contenders
- Example Of A High-Quality Dividend Contender: Amgen Inc. (AMGN)
- Final Thoughts
Overview of Dividend Contenders
The requirement to become a Dividend Contender is fairly straightforward: 10-24 consecutive years of dividend growth. While 10-24 years may not seem like longest track record, and indeed there are stocks with much longer streaks of annual dividend hikes, it is nevertheless a positive indicator. After all, there are a number of companies that have never paid a dividend. Or, even among companies that do pay dividends, many have not been able to raise their dividends consistently due to a lack of underlying business growth.
Many companies cannot pay dividends, or raise dividend payouts from year to year, because their business models do not generate enough profits or cash flow. Cyclical companies also have trouble joining lists of long-running dividend growth stocks, because their profits collapse during recessions. Automakers and oil stocks are good examples of highly cyclical companies that will often freeze or cut their dividends during recessions.
In recessions, corporate profits typically decline, particularly within industries that are closely tied to consumer spending. The past year has seen companies across multiple industries suspend or eliminate their dividend payouts due to the spread of the coronavirus pandemic, and its impact on the global economy.
That said, there were many companies that maintained their dividends over the past year, and even continued to raise them, despite the pandemic. The highest-quality dividend growth stocks that continued to increase their dividends in 2020, once again proved the staying power and durable competitive advantages of their business models.
This is why income investors looking for safe dividends and reliable dividend growth, should focus on companies with established histories of successfully growing their dividends, even during recessions.
Example Of A High-Quality Dividend Contender: Amgen Inc. (AMGN)
Amgen is on the Dividend Contenders list, and a prime example of a high-quality dividend growth stock that has rewarded investors over the years.
Amgen is the largest independent biotech company in the world. Amgen discovers, develops, manufactures, and sells medicines that treat serious illnesses. The company focuses on six therapeutic areas: cardiovascular disease, oncology, bone health, neuroscience, nephrology, and inflammation.
Amgen reported first-quarter earnings results on April 27th. Revenue fell 4.2% to $5.9 billion and missed estimates by $360 million. Adjusted net income of $2.2 billion, or $3.70 per share, declined 12% from adjusted net income of $2.5 billion, or $4.22 per share, in the previous year.
Product revenue fell 5%, as a 7% drag from lower realized prices more than offset a 4% gain in volumes. The prior year also saw a benefit from higher sales deductions that did not take place in the most recent quarter.
Prolia continues to be a major growth driver for Amgen.
Source: Investor Presentation
For 2021, Amgen reiterated expectations for revenue of $25.8 billion to $26.6 billion, while adjusted earnings-per-share are still expected in a range of $16.00 to $17.00.
Amgen’s competitive advantages include its strong pharmaceutical assets as well as its robust pipeline. Amgen spent 17% of its 2020 sales on research and development. The company also expects capital expenditures of $900 million for 2021, up from $600 million in 2020. As a result, it has a well-stocked pipeline to fuel its future growth.
The company has also demonstrated resilience during recessions, as people will seek treatment for their health issues regardless of economic conditions. The company also has a reasonably low payout ratio of 43% expected for 2021, which will allow it to continue to raise its dividend going forward, even in a prolonged recession.
We expect 9% annual earnings-per-share growth over the next five years for Amgen. This earnings-per-share growth will be achieved through a combination of rising revenue as well as share repurchases. We also expect the company to increase its dividend by 9% per year over the next five years, in-line with its earnings-per-share growth rate
Amgen stock currently has a dividend yield of 2.8%. This is not the highest yield around, but it is more than double the average yield of the S&P 500 Index, currently at just 1.3%. Plus, Amgen stock offers a high level of dividend safety and dividend growth, which are equally important considerations for long-term dividend growth investors.
Investors on the hunt for stocks with a high likelihood of increasing their dividends each year reliably, should focus on stocks with the longest histories of dividend growth. For a company to raise its dividend for at least 10 years, it must have durable competitive advantages, steady profitability even during times of economic downturns, and a positive future growth outlook. This will provide them with the ability to raise their dividends going forward.
If you are interested in finding high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The Dividend Aristocrats List: a group of elite S&P 500 stocks with 25+ years of consecutive dividend increases.
- The Dividend Champions List: a broader group of stocks with 25+ years of consecutive dividend increases, without the S&P 500 Index inclusion requirement.
- The Dividend Challengers List: stocks with 5+ years of consecutive dividend increases.
- The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List: considered to be the best-of-the-best among dividend growth stocks, the Dividend Kings are a group of exceptional dividend stocks with 50+ years of consecutive dividend increases.
- The Blue Chip Stocks List: contains stocks on either the Dividend Achievers, Dividend Aristocrats, or Dividend Kings list.
- The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
- The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.