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Rising dividends
Companies with steady earnings that keep increasing dividends typically enjoy rising share prices.
August 23, 2005: 9:06 AM EDT
By Michael Sivy, CNN/Money contributing columnist
A 17-part series on how to achieve maximum returns for the right amount of risk. See all the lessons.

NEW YORK (CNN/Money) - One of the most reliable ways for investors to build their wealth is to focus on companies with predictable earnings growth and long track records of raising dividends.

Over the long-term, stock prices tend to follow earnings, so consistent growth eventually translates into a higher share price.

That's especially likely to be true if a company increases the amount it pays out as dividends every year. Regular dividend hikes are one of the signs of a solid, seasoned management that is committed to rewarding shareholders.

Rising dividends often mean above-average yields, but not always. Some companies start with very small payouts and increase them only moderately each year.

Investors who need income will want to focus on the highest-yielding stocks in the group. But steadily rising dividends are a big plus even if a stock's yield is low, because such increases are typically a bellwether for superior long-term returns.

The table below shows 10 stocks that have increased their annual earnings for at least five years -- and some for at least 30. In addition, all 10 companies have raised their dividends for more than 16 years in a row.

You can find such stocks in a number of conservative investing guides. The ones in this table are drawn from the latest edition of "America's Finest Companies," available from the Staton Institute (statoninstitute.com).  Top of page

Company (Ticker) Price
(8/22)
Earnings growth
(Long term)
Dividend
yield
P/E
(2006)
PEG
ratio
General Electric (GE) $33.97 11.0% 2.6% 16.5 1.5
Home Depot (HD) $40.53 14.0% 1.0% 13.5 1.0
Johnson & Johnson (JNJ) $63.50 10.0% 2.1% 16.8 1.7
Legg Mason (LM) $106.50 15.0% 0.7% 18.9 1.3
Lowe's Companies (LOW) $63.91 18.0% 0.4% 16.5 0.9
Pepsico (PEP) $55.05 10.0% 1.9% 19.1 1.9
Sysco (SYY) $33.99 13.0% 1.8% 19.1 1.5
Walgreen (WAG) $46.79 16.0% 0.6% 26.4 1.7
Wal-Mart Stores (WMT) $46.47 14.0% 1.3% 15.4 1.1
Washington REIT (WRE) $30.41 6.0% 5.3% 13.9 2.3
The PEG ratio is calculated by dividing P/E by earnings growth. A PEG of 1.0 means a stock is valued in line with the company's growth rate.
Source: Thomson/Baseline

Sivy on Stocks resources:

Sivy 70: America's best stocks

Guide to Growth

___________________

Michael Sivy is an editor-at-large for MONEY magazine. Click here to receive Sivy on Stocks via e-mail every Tuesday.

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