Why Dividend-Paying Consumer Stocks Are Worth a Look in This Market

In times like these, the tried and true trump the bold and new.

In case you haven't noticed, there has been a great deal of strength in the stock market during the past month. But the rebound isn’t coming from the market leaders of the past several years. The high-flying growth stocks, especially in the tech sector, and the petroleum and resource stocks that once enjoyed great popularity have let many people down in recent months.

What is holding up well are the mundane stocks that many consider too boring to own, such as food, utilities, and other consumer staples that represent the needs rather than the wants of the population. These are just the type of stocks that we have always highlighted in relation to dividend reinvestment plans (DRIPs), a form of investing that was created out of the strength of well-known consumer brands companies like Procter & Gamble (opens in new tab), Colgate-Palmolive (opens in new tab) and Kimberly-Clark (opens in new tab), along with diversified industrials like 3M Company (opens in new tab), Boeing (opens in new tab) and Raytheon (opens in new tab). Even in the oil sector, the size and resources of Exxon Mobil (opens in new tab) make it stand out in sharp contrast to the master limited partnerships (MLPs) that have been decimated.

The stark differences between the tried and true and the bold and new have become obvious and it is the former that is providing comfort to investors while the latter have disappointed.

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Even within sectors, the differences are clear. While stocks such as Intel, Microsoft and Cisco have become steady dividend payers (and raisers), popular social networking firms such as Facebook and Twitter have seen their weaknesses exposed. Their reliance on being trendy and new, apparent strengths, can vanish overnight. Whether or not the economy slips into recession, the recent weaknesses in the stock market have made it clear that investors need to pay more attention to the differences in these two worlds: the ethereal world of overnight popularity and the tangible world of long-term success created by companies that provide for basic needs.

Our current stock recommendation is Vectren Corp. (opens in new tab) (symbol VVC (opens in new tab)). The company was formed when Indiana Energy, which was founded in 1912, merged with SIGCORP in March 2000. It operates in about two-thirds of Indiana, as well as west central Ohio, serving more than one million natural gas and 144,000 electricity customers, and logs about $2.5 billion in annual revenues. Its non-utility group operates in three segments: energy marketing and services; coal mining; and energy infrastructure services. According to Yahoo Finance, consensus estimates call for the company to earn about $2.52 per share this year, up from $2.39 in 2015, and to go on to net about $2.71 per share in 2017. In October, the board of directors approved a boost in the quarterly dividend, from 38 cents to 40 cents per share, marking the 56th consecutive annual increase and providing a 3.3% yield.

(Image credit: Thinkstock)

What makes Vectren so attractive is that it provides basic natural gas and electric services to a very stable population base in the Midwest, where regulators have been willing to allow reasonable rate increases and a steady rate of return. That has translated into one of the longest streaks of annual dividend increases in the entire country, which shows no sign of ending soon.

The strength of the earnings and dividend growth rests on the simple fact that Vectren provides necessities in the form of heat and electricity that people will pay for no matter what the state of the economy. Even during the most stressful times of recession, utility bills must be paid (and government assistance is generally available to low-income families and individuals, if needed). Although the company lists non-regulated segments such as energy marketing and coal, that part of its business does not create a severe drag on earnings, since it is relatively small in size.

Vectren (opens in new tab) is just one of a long list of tried and true companies that have routinely raised their dividends year after year. And many of these companies offer investors the opportunity to invest directly in their company-sponsored DRIP without paying any broker commissions or fees of any kind. Here’s a complete listing of No-Fee DRIPs that have raised their dividend payouts for 25+ years (opens in new tab).

Ms. Vita Nelson is one of the earliest proponents of dividend reinvestment plans (DRIPs) and a knowledgeable authority on the operations of these plans. She provides financial information centered around DRIP investing at www.drp.com (opens in new tab) and www.directinvesting.com (opens in new tab). She is the Editor and Publisher of Moneypaper's Guide to Direct Investment Plans, Chairman of the Board of Temper of the Times Investor Service, Inc. (a DRIP enrollment service) and co-manager of the MP 63 Fund (DRIPX (opens in new tab)).

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Vita Nelson
Founding Publisher and Editor, Moneypaper
Ms. Vita Nelson is is the Editor and Publisher of Moneypaper's Guide to Direct Investment Plans, Chairman of the Board of Temper of the Times Investor Service, Inc. (a DRIP enrollment service), and co-manager of the MP 63 Fund (DRIPX).