This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Beat the Treasury With These 5 Dividend-Growth Stocks

Editor's note: As part of our partnership with Nightly Business Report, TheStreet's Lindsey Bell will join NBR Monday (check local listings) to discuss investing in dividend-growth stocks.

NEW YORK ( TheStreet) -- The hunt for yield is stronger than ever. But now it's harder to find.

There are plenty of stocks that pay dividend yields in excess what the U.S. Treasury is offering. It's not difficult to outpace a yield of just over 1.5%, after all. That's where the 10-year Treasury bond is, thanks to its status as a safe haven for investors around the world.

Many Americans, concerned more about preserving capital than making a return on their money in this volatile environment, often forget to take into account how inflation affects their investment. Because inflation is 1.7%, they're actually losing money on the 10-year bond.

In 2011, the dividend yield for the entire S&P 500 stood at 2.1%, which rivals the yield of the 10-year U.S. Treasury, but still remains below the long-term average of 4.5%.

That's one reason higher-yielding, dividend-paying stocks have been a top choice by investors looking for decent return and steady stream of income over the past few years. And now those higher-yielding stocks trade at about a 20% premium to stocks with high dividend growth.

A lot of professional investors are turning to dividend-growth stocks over high-yielding stocks, and not just for the relatively cheaper valuations. Only high-quality and healthy companies can afford to grow their dividends steadily. With cash on corporate balances sheets at high levels and dividend-payout ratios at their lowest levels since the start of the 20th century, there's good reason these types of companies make a good investment.

On average since 1900, the S&P 500 dividend-payout ratio averaged 54%, according to Bank of America's (BAC) Merrill Lynch. Today, that ratio is closer to 25%. Clearly, corporations have room to raise their payout ratios.

The S&P 500 is up nearly 8% this year, but given the volatility of the market, it's been hard for all members of the benchmark to keep that pace. Despite the underperformance versus this volatile benchmark this year, certain dividend-growth stocks offer a safe haven for more conservative investors by offering a steady stream of income with a respectable yield and a total return above that of the 10-year Treasury.

Below are examples of five such stocks I was able to find in a search on Bloomberg (in no particular order). I looked for companies in the S&P 500 that had at least a 3.5% dividend yield, a long history of growing their dividend, and had a stock price that was widely underperforming the S&P 500 but was about flat on the year or up slightly. The last criteria allowed me to find stocks that had a great yield that is likely to keep rising as the dividend is increased. Also, the stocks I chose were for the most part mature, slower-growth companies that should have better earnings visibility.
1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HNZ $72.49 0.00%
D $71.98 -1.10%
JNJ $112.88 0.58%
HRB $20.03 -0.89%
WM $60.31 -0.17%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,048.23 -2.89 -0.14%
NASDAQ 4,714.6790 -10.96 -0.23%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs