THE KIPLINGER DIVIDEND 15 A Bounce-Back Year for Dividends
Kiplinger's Personal Finance|December 2021
All of our favorite dividend stocks hiked payouts over the past year, and yields, on average, trounced the yield of the S&P 500.
ADAM SHELL

THE PAST YEAR WAS A RECOVERY YEAR for dividends. A record profit rebound for U.S. companies powered by the reopening of the economy puts the S&P 500 index on track in 2021 for its 10th straight year of record dividend payouts. In the third quarter, S&P dividends hit a quarterly record of $15.36 per share, and forecasts point to a new record in the fourth quarter. For the full year, S&P Dow Jones Indices sees payouts rising nearly 5%, to $60.97, for stocks in the index, following 2020’s record payout of $58.28. Unlike last year, when 42 S&P 500 companies suspended dividends to preserve cash during the pandemic, just one stock halted payouts this year. “Dividends are back,” says Howard Silverblatt, senior index analyst at S&P.

Members of the Kiplinger Dividend 15, our favorite dividend stocks, benefited from the resurgence. All of our companies boosted their payouts over the past year. As a group, our dividend payers yield an average of 3.2%, more than twice the S&P 500’s 1.4% yield.

Things weren’t as rosy on a total-return basis, however. Over the past 12 months, the Dividend 15 returned 21.1%, on average, compared with a 29.3% gain for the broad market. The biggest gainer was asset manager Blackstone, whose shares rose 116.8% in the past year. Emerson Electric, drugmaker AbbVie, computer chip manufacturer Texas Instruments and energy firm Enterprise Products Partners also posted market-beating returns. Laggards were led by Air Products & Chemicals and defense contractor Lockheed Martin. Read on for updates on the Dividend 15. Returns and data are through October 8.

DIVIDEND STALWARTS

This group has a high bar to hurdle: a minimum of 20 consecutive years of dividend increases. Our seven picks have hiked payouts an average of 55 years in a row.

3M, the maker of Post-it Notes, ACE bandages and myriad other consumer, industrial, electronic and health care products, extended its streak of consecutive dividend increases to 63 years in 2021. The conglomerate’s bottom line has been crimped by rising costs for raw materials, worker pay and transporting goods, as well as legal costs related to lawsuits involving military earplugs. Still, business remains sound. Sales in the first six months of 2021 rose 16%, to $17.8 billion. The stock sports a plump 3.3% yield. And after pulling back from its May peak, 3M’s below-market price-earnings ratio of 16.4 is attractive. Analysts at research firm Argus say the “dividend is secure and poised to grow.”

Despite starting 2021 with a 12% dividend increase, shares of AIR PRODUCTS & CHEMICALS, an industrial gas company, have tumbled nearly 10% over the past year. The weakness comes despite estimated sales growth of 14% for the fiscal year that ended in September (reversing a slight revenue drop the prior year) and projections for 8% growth in fiscal 2022, according to investment research firm CFRA. Analysts blame the underperformance on pandemic headwinds and uncertainties surrounding an energy project in Saudi Arabia. But both drags appear to be mostly in the rearview mirror.

Meanwhile, the company is seizing opportunities in green-friendly businesses, including gasification (a process that sustainably converts feedstocks and natural resources into synthetic gas); carbon capture projects; and production of hydrogen to power buses and trucks. CFRA analyst Matthew Miller says Air Products’ strength in clean energy, its ability to raise prices and new project wins will generate enough free cash flow (cash left over after paying operating expenses and spending to maintain or expand the business) to fund dividend hikes.

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