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Dividend Growth Reveals the Path to Profits

In identifying dividend growers, I look for companies that not only have a history of dividend increases, but also the ability to continue this trend in the future. Companies with lower dividend-payout ratios, and light debt loads are typically good candidates.

To that end, I looked at U.S. companies that have the following attributes:

  • Market caps larger than $5 billion
  • Dividend payout ratios of less than 50% for past two years
  • Dividends that have been raised for at least the past seven years
  • Dividend growth rates of at least 10% for past five years
  • Long-term debt-to-equity ratios of less than 50%

About three dozen companies made the grade. The results are a veritable who's who of large-cap names.

Retailers are well-represented on the list. They include Costco (COST), CVS Caremark (CVS), Lowe's (LOW), Family Dollar Stores (FDO), Walgreen (WAG), TJX Cos. (TJX), Ross Stores (ROST) and Tiffany (TIF).

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In technology, there's Xilinx (XLNX), Texas Instruments (TXN), Intel (INTC) and Analog Devices (ADI). Food companies include Hormel (HRL) and Archer Daniels Midland (ADM). From consumer products, there's Procter & Gamble (PG) and Church & Dwight (CHD). From energy, there's Murphy Oil (MUR), ConocoPhillips (COP), and Occidental Petroleum (OXY).

That's just the tip of the iceberg. There are also many smaller companies that fit the bill. I'll save that for a future column.

-- Written by Jonathan Heller, president of KEJ Financial Advisors and a contributor to TheStreet and Real Money. As of publication, he had no positions in the stocks mentioned.

At the time of publication, Heller had no positions in the stocks mentioned.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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