Dividend investors want the best of both worlds: a lot of current income plus the potential for growth over the long haul. It's important to pick dividend stocks that have a track record of success and good prospects looking ahead. With the stock market averaging about a 2% dividend yield, blue-chip stocks that can double that payout are in high demand. That's why it makes sense to take a closer look at General Electric (NYSE: GE), Rio Tinto (NYSE: RIO), and Altria Group (NYSE: MO), all of which are yielding more than 4% right now.
Bringing good dividends to life
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General Electric has been a mixed bag for investors lately, but the industrial conglomerate has a long track record of treating its shareholders well when it comes to dividends. GE was a Dividend Aristocrat until the financial crisis led it to make a massive dividend cut in order to support its financial services division. Since then, though, General Electric has gotten back on the dividend growth bandwagon, with regular increases that have more than doubled its payout since its bottom in 2009. The stock currently yields 4.1%.
General Electric is at a turning point right now, with new CEO John Flannery working toward coming up with a long-term strategy for the next 10 years to help the conglomerate recover from recent weakness. With its recent foray into the energy sector having proven to be ill-timed, GE has to decide whether to stay the course and hope for a cyclical uptick or to pivot toward higher-growth areas like healthcare. Strength in initiatives like the Internet of Things as well as fast-growing industries like aerospace also hold plenty of potential for General Electric, and dividend investors can hope for both share-price gains and payout increases in the years to come.
Digging for dividends
Mining companies aren't known for their generous dividend policies, largely because mining is a capital intensive activity that requires considerable reinvestment of cash flow back into business operations. Yet income investors can find some companies that are willing to share their success with shareholders through regular dividends, and Rio Tinto has a good track record of treating its investors well. The mining stock currently yields 4.5% on a trailing basis if you take the company's interim semi-annual dividend payment and assume it will make a similarly sized final payment for the fiscal year next spring.
Rio Tinto is a massive player in iron ore, and the rebound in global steel demand has helped to pull the mining company's stock higher after a long malaise during the commodities bust of recent years. With a policy of returning between 40% and 60% of its cash flow to its shareholders as dividends, new expansion plans to key mines like its Silverglass asset could help to boost production dramatically, and that should in turn fall through to the bottom line and increase how much shareholders receive in dividends in future years.
Finally, Altria has had a long history of treating its shareholders well. The tobacco giant has given its investors dividend increases at a rate of more than one per year for half a century, and Altria's current yield has climbed above the 4% mark once again.
Many investors are nervous about a recent regulatory proposal from the U.S. Food and Drug Administration that seeks to force Altria and its cigarette-making peers to reduce the amount of nicotine present in cigarettes to levels that are small enough not to be addictive. Yet Altria has a history of working with regulators to keep such initiatives at a manageable level, and its pricing power gives it the ability to keep its revenue and profits moving higher even as the secular decline in cigarette smoking causes overall sales volumes in unit terms to decline over time. Altria has a strong brand presence thanks to its well-known Marlboro products, and betting against the tobacco giant has been a losing proposition for decades.
Top dividend stocks offer both above-average yields and growth potential. Altria, Rio Tinto, and General Electric all face challenges, but they each also have the ability to produce substantial long-term returns both from share-price increases and from dividend growth.
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