5 Stocks Raising Dividends in This Tough Market

Friday, July 8, 2011 - 11:00am

by Lisa Springer

Experienced income investors know one of the surest ways to build wealth is to buy stocks that regularly increase dividends. This is because dividend growth can turn even low-yielding stocks into big income producers over time.

For example, consider the income stream generated by a stock yielding 6% and not increasing dividends for six years, compared with a stock that yields 4% but grows dividends 10% a year. Let's assume both stocks are $10 share price you buy 1,000 shares. Here is the income stream each will produce:

After five years, the two income streams are roughly the same. After seven years, the 4% yielder produces almost 20% more income. The results improve more and more over time -- by year 13 you're earning twice as much as the 4% yielder.

With a dividend growth strategy, your income steadily improves regardless of share price trends because of the wealth-building effect of compounding
Dividend increases are a once-a-year occurrence for most stocks, but some companies raise dividends more frequently. Here are five stocks that have increased dividends twice or more in the past 12 months.

1. Moody's Corp. (NYSE: MCO)
Two dividend increases and 32% dividend growth in six months

Moody's provides credit ratings and research covering debt instruments and securities. In April, Moody's increased its quarterly dividend by 22% to $0.14 per share. This is the second consecutive quarter of dividend growth for the company. The quarterly dividend had already been increased by 10% in December. Moody's recorded a 27% gain in first-quarter 2011 earnings, easily beating consensus analyst estimates. For the full year, Moody's now expects to earn $2.22 to $2.32 per share, which is well above the average analyst forecast of $2.18 per share.

Moody's has raised dividends in seven of the last eight years, including twice already in 2011. Moody's share price is up 95% in the past 12 months and the shares yield 1.4% at the new dividend rate.

2. Intel Corp. (Nasdaq: INTC)
Two dividend increases and 31% growth in six months

Intel hiked its quarterly dividend by 16% in May to $0.21 per share. This was the second dividend increase in six months and follows a 15% hike last November. Intel, a maker of integrated circuits, is benefiting from rising worldwide demand for computing and is on track to deliver better than 20% growth this year.

Intel began paying a cash dividend in 1992 and has raised distributions eight years in a row. In the past seven years, payout has increased by 33% a year, five times faster than the S&P 500's 6% growth rate for the same period. Intel shares have gained 17% in the past 12 months and currently yield 3.2%, based on the new dividend rate.

3. AmerisourceBergen Corp. (NYSE: ABC)
Two dividend increases and 40% growth in six months

AmerisourceBergen increased its quarterly dividend by 15% in May after a 25% dividend increase in November. The generic drug manufacturer should enjoy robust growth as branded drugs worth about $30 billion in revenue will lose patent protection in the next two years. AmerisourceBergen anticipates at least 15% yearly earnings gains and plans to return one-third of cash flow to investors through dividends and share repurchases.

The company's annual dividend has increased six-fold in five years. AmerisourceBergen shares have gained 36% in the past year and yield 1.1%, although the dividend should increase considerably in the future.
4. General Electric (NYSE: GE)
Three dividend increases and 50% growth in 12 months

Following a 20% hike last July and a 17% boost in December, GE raised its dividend again by 7% in April. This was its third dividend increase in 12 months. The company also recorded a 58% year-over-year earnings improvement in this year's first quarter as well as its fourth consecutive quarter of double-digit earnings growth.

GE has emerged from the recession a stronger, leaner company and is capitalizing on increasing demand in its healthcare, transportation and aviation segments. The company has paid dividends for more than 100 years and made 32 consecutive annual increases from 1976 to 2007.

GE shares are up 37% since last year. The stock yields 3.1% based on the new dividend rate. The company cut its dividend by two-thirds during the financial crisis, but has come roaring back. Since the original cut in 2009, the dividend has climbed 50% to the current rate. Three rate increases in the last two years suggests GE is committed to restoring the dividend to prior levels.

5. Healthcare Services Group (Nasdaq: HCSG)
Four dividend increases and 7% growth in 12 months

The undisputed champion for number of consecutive quarterly dividend increases must be Healthcare Services, which provides laundry and housekeeping services to hospitals and nursing homes. The company has raised its dividend in 31 of the past 32 quarters. The latest increase was in April, when the company bumped the dividend by 7%. 

Healthcare Services has grown earnings by more than 10% a year in the past decade. Dividends have tripled in the past five years and shares currently yield 3.7%. With aging Americans demanding more healthcare services, it's hard to imagine a scenario where demand for the company's services will drop.

Action to take--> GE is my top pick for conservative investors. This diversified giant is committed to restoring the dividend to former levels as soon as possible. Rapid growth in the generic drug market makes AmerisourceBergen my choice for aggressive portfolios.

P.S. -- If you're looking for quality stocks with high yields, you should take a look at this one. It pays a 19.2% dividend yield. It borrows cheap, gets paid handsomely and then pockets the spread. You'll get the full story on this cash machine and others like it in this video.

Lisa Springer does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.