Avoid No-Growth Dividend Stocks

When building a dividend growth portfolio many people look at how many consecutive years a company has increased its dividend. A company that has raised its dividend every year for 50 consecutive years, for example, is likely to continue the practice. But this record of consistency alone is not enough to justify a place in my Ultimate Dividend Growth Portfolio, a paper portfolio which you can track here. A stock with dividend growth which is too slow given the yield, regardless of consistency, is not the ideal dividend growth stock.

There are many stocks with very long records of dividend increases that are very popular amongst dividend investors. And if you're looking for consistency then these stocks are fantastic. But for a dividend growth portfolio, where the right combination of yield and growth is required, these stocks currently have no place: Coca-Cola (NYSE: KO), 3M (NYSE: MMM) and Waste Management (NYSE: WM). Just because a dividend is growing doesn't mean the stock is a dividend growth stock. All three companies mentioned are great if you're looking for a relatively safe, reliable stock. But none of them offer a high enough rate of dividend growth to justify their yields.

Source: Motley Fool

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