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.
2. Company: Johnson & Johnson ( JNJ) Company Description: Diversified consumer products company. Some of the company's widely known brands include, Clean & Clear, Aveeno, Splenda, Band-Aid, Tylenol, and Sudafed. Stock Price Performance YTD: 3.1% Dividend Yield: 3.6% 5-Year Net Dividend Growth: 8.5%
3. Company: Waste Management ( WM) Company Description: Performs the collection, transfer, recycling, and disposal of waste in North America. Stock Price Performance YTD: 0.9% Dividend Yield: 4.3% 5-Year Net Dividend Growth: 8.6%
4. Company: H&R Block ( HRB) Company Description: Primarily provides tax services for individuals. Stock Price Performance YTD: -1.1% Dividend Yield: 5.0% 5-Year Net Dividend Growth: 6.8%