Building a Dividend Portfolio That Can Stand the Test of Time

By Markets

Image source: Getty Images.

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The smartest investors in the world aren't wrong. Dividend investing works, which is fantastic news for investors of all ages and incomes who are saving for retirement. However, constructing a portfolio of the best dividend stocks on the market doesn't happen on its own.

So how can you find, buy, and grow your wealth with the top dividend stocks on the market today? Constructing a portfolio of great dividend stocks requires understanding a few key characteristics, including a stock's current dividend yield, dividend growth track record, payout ratio, and more.

Dividend investing overview

Successful dividend investing isn't necessarily about identifying any single characteristic in a stock. Rather, investors should focus on finding stocks that consistently grow cash distributions in a sustainable way over the long term, and reinvesting those payments. Finding such stocks with a high dividend yield can create a potent compounding machine that has been proven to outperform the market if consistently applied over the long term.

The table below shows five of the top dividend stocks on the market today, which I define as companies with dividend yields over 3% -- about 50% higher than the S&P 500's yield -- and track records of more than 25 years of consecutive annual dividend increases:

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Company Name Dividend Yield No. Consecutive Annual Dividend Increases
Procter & Gamble 3.0% 59 years
Consolidated Edison 3.6% 41 years
Coca-Cola Company 3.3% 53 years
T. Rowe Price 3.2% 29 years
McDonald's 3.0% 39 years

Data sources: Dividend.comand Google Finance.

However, this only speaks to a few of the most important aspects in selecting the best dividend stocks for your portfolio, so let's dive deeper into a few of the dividend stocks that seem particularly compelling for investors today.

Image source: Getty Images.

Procter & Gamble's track record of dividend excellence

Few companies have established a more impressive dividend history thanProcter & Gamble (NYSE: PG). Before delving further into why long-term dividend investors love P&G, here are its three most crucial dividend statistics:

Company Name

Dividend Yield

Years of Consecutive Increases

Payout Ratio

Procter & Gamble




Data sources: Dividend.comand Yahoo! Finance.

Even if you don't realize it, chances are you encounter at least one brand owned by Procter & Gamble on a daily basis. The company owns 66 consumer products spread across consumer staples categories including home cleaning, laundry, and personal care products. Even more impressive, 22 of P&G's brands each contributed more than $1 billion in sales to the company in 2015.

The company's products tend to enjoy fairly stable demand regardless of the current health of the economy, which is a major reason Procter & Gamble has produced such a steady history of increasing dividend payments.

The company has faced headwinds, particularly the strengthening of the U.S. dollar in recent years. But it has moved aggressively to cut costs and reinvest those savings into new organic growth initiatives. Analysts are now calling for the green shoots from P&G's turnaround efforts to begin to manifest themselves in coming quarters. Either way, though, a company with P&G's staying power makes it one of the best opportunities for long-term dividend investors on the market today.

Image source: Getty Images.

T. Rowe Price: a low-profile dividend giant

Mutual fund management T. Rowe Price's (NASDAQ: TROW)offers a rock-solid dividend, as you can see below:

Company Name

Dividend Yield

Years of Consecutive Increases

Payout Ratio

T. Rowe Price




Data sources: and Yahoo! Finance.

With $777 billion in assets under management (AUM), T. Rowe Price remains one of the best asset managers in the world. An impressive 80% of T. Rowe Price's mutual funds beat their 1- and 3-yearLipper Averages, a popular performance benchmark for mutual funds, at the end of last calendar year, an accomplishment that helped earn T. Rowe Price the No. 4 ranking on Barron's Top Mutual Fund Families list this year.

Performances like this should help T. Rowe attract new customers over the long term, though the company's quarter-to-quarter performance tends to fluctuate with the stock market for a few reasons. T. Rowe Price generates its revenue from the fees it collects from the various funds it manages. Bull markets bring fat times for T. Rowe as rising asset prices increase its AUM and, thus, the fees it collects. However, uncertain markets or bear markets can have the opposite effect, which we've seen with recent T. Rowe Price earnings reports, though it remains worth noting that the stock market's long-run direction favors growth.

Either way, T. Rowe Price manages its business with the utmost conservatism -- it carries zero long-term debt on its balance sheet-- which leaves the company ample cash flow to return to shareholders via buybacks and dividends. Over the past two years, T. Rowe Price has reduced its shares outstanding by nearly 5%. What's more, the company's demonstrated commitment to growing its annual dividend payments makes it another fantastic option for investors interested in building an exceptional long-term dividend portfolio.

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Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Procter and Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.