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Companies with the Muscle to Boost Dividends

Thanks to great economics, these firms can grow and pay dividends.

Mentioned: , , , , , , , , ,

There's something to be said for rising dividends.

Out of our total universe of 7,000 stocks, 46% have negative total returns over the trailing five years. Among the subset of those stocks that currently pay a dividend--about 2,000 all told--the percentage of losers drops to 33%. And among the 600 or so stocks that have consistently boosted their dividends, the percentage shrinks to just 17%.

It's not so much that dividends have held up the stocks that pay them. It's that companies that pay no dividends have crashed and burned, creating the bear market we've been living through the past three years. During the bull market, companies that plowed every dollar back into the business--and aggressively raised additional capital to buy assets--were the ones driven to ridiculous highs. When the hoped-for growth failed to materialize, the share prices of these firms collapsed. Call them the hares. The tortoises were the companies willing to part with cash by paying dividends to shareholders.

Haywood Kelly, CFA has a position in the following securities mentioned above: JNJ. Find out about Morningstar’s editorial policies.