Martin Cohen and Robert Steers, the co-CEOs of Cohen & Steers, are best known for real estate funds.
Yet, according to Morningstar, they also have one of the best-performing stock mutual funds over the past three years. The investment firm follows a conservative investment strategy, preferring slow but steady returns.
The slow-and-steady approach works well. Cohen & Steers’ Dividend Value fund, managed by Rick Helm, returned 21 percent in 2006, outperforming the S&P 500 index by 5 percentage points; its 8 percent return last year beat the index by 2 points.
Although showing a loss so far this year, Helm is more than 3 percentage points ahead of the S&P.
Helm looks for stocks with high rates of dividend growth. An independent study conducted by Ned Davis Research found that, from 1972 to 2007, companies growing or starting dividends outperformed the market by an average of 2.4 percentage points a year.
When a company increases its dividend, this is a signal that management expects business to be good in the future. Good businesses usually have good stocks.
These stocks also should be especially appealing to income-oriented investors. The same study found that dividend-growth stocks were less volatile than the overall market.
To find stocks meeting this criteria we screened for stocks which had increased their dividends at an annualized rate of at least 15 percent over the past five years with double-digit earnings growth for next year.
Only seven stocks made our growing-the-dividends screen:
FactSet Research Systems Inc. (FDS)
This company provides professional investment research and is projected to grow earnings at 18 percent a year for the next five years, at least 50 percent faster than its peer group. FDS recently traded at 63.68.
Fastenal Company (FAST)
FAST is among the largest holdings of the Sequoia Fund, a value fund mentioned by Warren Buffett as one that he admires. The stock is still trading near its 52-week high at a recent price of 48.81.
International Business Machines (IBM)
The computer giant has the highest return on equity and highest dividend yield in its industry. But at a price of 126.49, IBM trades at a below-market P/E ratio of 16. The company is expected to see earnings grow by nearly 20 percent this year.
MET is a five-star S&P stock and among the few insurance companies with very little exposure to the subprime market. It wisely allocated just 0.7 percent of its investment portfolio to that troubled asset class. At 61.37 a share, the P/E ratio is only 12.
OKE is a natural gas utility with a 3.1 percent dividend and the fastest revenue growth in its industry. The stock has a price-to-sales ratio at one-third the industry average, making it a classic value stock. This undervalued company had a recent price of 49.06.
The Estée Lauder Companies (EL)
This high-end cosmetic and personal care powerhouse recently started selling its product line through TV sales outlet QVC, which increases exposure and opens up new markets. Insiders own nearly 20 percent of the shares, indicating they believe in the company’s future prospects. Recent price: 47.90.
Tiffany & Co. (TIF)
TIF enjoys loyal customers able to withstand an economic downturn. This means steady earnings, healthy margins, and steadily increasing dividends even during recessions. Recently trading at 48.22.
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