US economic growth was down 1 percent for the last quarter. That is obviously bearish news for the American economy. For investors, the role of the dividend becomes even more important. As detailed in previous articles on this site, “Dividend Aristocrats” such as Coca-Cola (NYSE: KO), ExxonMobil (NYSE: XOM), and Wal-Mart (NYSE: WMT) become even more appealing when there is a lack of positive news.
The value that dividend income brings to a stock should never be overlooked.
According to investing legend Jack Bogle, founder of the Vanguard mutual fund group and author of the book “Enough,” more than 40 percent of the total return of equities over history has been from the income feature. In a down market, it is the only positive return. An asset should always pay the owner, which is what makes a dividend stock so appealing. It is also a positive sign that the management of the company shares the income with all of the owners, even if they only own one share!
That is especially so for “Dividend Aristocrats” such as Coca-Cola, ExxonMobil, and Wal-Mart.
Just to pay a dividend is a sign of strength for a company. To be a Dividend Aristocrat, a stock must have increased its dividend annually for at least the past 25 years. Only the most robust companies can do something like that in diverting cash flow to shareholders in the form of a dividend check.
What makes Coca-Cola, ExxonMobil, and Wal-Mart even more alluring is the dividend yield.
At present, the average dividend for a member of the Standard & Poor’s 500 Index (NYSE: SPY) is just under 2 percent. The dividend yield for Coca-Cola is 3 percent. For ExxonMobil, it is 2.73 percent. Wal-Mart has a dividend yield of 2.53 percent. As Dividend Aristocrats, the dividend amount has traditionally been raised. For long term investors, that means the company gives you a raise yearly by increasing the amount of the dividend just for owning the stock!