"Companies in the Standard & Poor's 500-stock index are expected to pay out a record $183 billion in dividends this year," Dow Jones reported recently. The rising dividends are the result of three developments: sharply higher profits for companies, sharply lower taxes on investors who receive dividends, and growing interest among shareholders for tangible indications that their stocks are performing well. So far this year, 119 companies have reported they are raising their payouts, compared with 92 at this time in 2003. And, through mid-May, dividend-paying stocks among the S&P 500 had lost an average of just 0.6 percent while non-dividend payers had lost 4.9 percent. The May 21 issue of Value Line used computer screens to find "stocks for dividend growth with low risk," a gratifying combination. To qualify, companies had to have raised their payouts by an average of at least 7 percent over the preceding five years and projected dividend growth rates of at least 4 percent for the next three to five years. Also, the companies had to have a dividend yield of at least 2.8 percent, a Value Line Safety rank of at least "2" (above average), a Financial Strength rating of B++ or better (also above average) and a Timeliness rank of at least "3" (average). Of more than 2,000 stocks, only 15 passed all the screens. Here are six I find intriguing: Arthur J. Gallagher & Co. (AJG), insurance brokerage, with a dividend yield of 3.2 percent; Total S.A. (TOT), French-based integrated oil and gas company, 3.2 percent; Wells Fargo & Co. (WFC), bank, 3.1 percent; Sara Lee Corp. (SLE), food processing, 3.3 percent; Mercury General Corp. (MCY), auto insurance, 3 percent; and Unilever PLC (UL), London-based consumer goods firm, 4.6 percent. Compare those dividend returns, which, of course, aren't guaranteed but are likely to rise over the next five years (as are stock prices), with the current yield on a five-year Treasury note: 3.8 percent, even after the recent run-up.
-- James K. Glassman