Savvy investors know you want to make money work for you in the long run. One way to do that is by generating passive income through dividend stocks. These stocks can be a consistent source of income through their quarterly (sometimes monthly) dividend payouts.
However, not all dividend stocks are equal. Some have high yields of 10% or more. These stocks can be appealing because of their lucrative payouts, but they come with higher risks.
Other companies are more prudent with their dividend payouts, which they increase annually like clockwork. These companies tend to have stable businesses, manage cash well, and have more trustworthy dividend payments. Here are three dividend stocks that have grown their payouts for 40 years or more.
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1. S&P Global
S&P Global(NYSE: SPGI) operates in a hard-to-break-into industry, giving it a massive competitive advantage. The company has raised its dividend payout every year for the past 50 years and earns investors a modest yield of about 1%.
What makes S&P Global a solid business is its importance to credit markets. The company assesses the creditworthiness of companies, governments, or other entities and gives them a credit rating. This rating can inform banks and investors of the risks associated with lending to those entities so they can appropriately manage their risk.
The credit ratings business isn't easy to break into. Established agencies have a long-standing reputation. Stringent oversight and regulatory barriers also add to the difficulties of breaking into the industry. According to the Securities and Exchange Commission, S&P Global dominates the credit rating market with a 50% market share. Its next-closest competitors, Moody's Corporation and Fitch Ratings, have a 32% and 12% market share, respectively.
The ratings business has faced some headwinds as fewer companies issue debt in the rising interest rate environment. Tightening conditions hurt S&P Global's ratings business, but it also has a robust data and analytics business that provides a steady cash flow stream. Its diverse income base and long history of cash management make S&P Global a solid dividend stock for the long haul.
2. Cincinnati Financial
Cincinnati Financial(NASDAQ: CINF) writes insurance policies, which provide an excellent source of reliable cash flows. The property and casualty insurer benefits from steady demand for its products, regardless of what the economy does. It can adapt to rising costs and adjust premiums while carefully measuring the risks it's willing to take on. Its steady business has provided investors with a dividend that has grown every year for 62 years and currently yields 3%.
The insurance industry is highly competitive, and the best companies balance risk and rewards and consistently write profitable policies. Cincinnati Financial has done a solid job, beating the industry average profitability over the past 21 years. This period included a rough patch from 2008 through 2011, where its profitability dipped. The company continued raising its payout during this period to maintain its impressive dividend streak -- a testament to its balance sheet management.
The insurer has raised its payout across the past nine recessions. Given its impressive track record, Cincinnati Financial is an all-weather dividend stock you can rely on.
3. Aflac
Aflac(NYSE: AFL) provides life insurance and supplemental health insurance policies for customers across the U.S. and Japan. Because people don't want a health scare to crush them financially, businesses and individuals seek out insurers like Aflac to protect them from life's unknowns. This stable business model is why Aflac has grown its dividend payout every year for 41 years. It also yields investors 2% annually.
It hasn't always been smooth sailing for Aflac. When the pandemic arrived in 2020, life insurers felt pressure from all sides. Millions of people lost their jobs and, thus, employee benefits. Not only that, but the life insurance industry as a whole also dealt with increased claims costs.
The last couple of years have improved for Aflac. Claims costs are down, it has added new products, and it benefits from higher interest rates. This year, its net investment income has increased by 6.7% and should continue to benefit as it reinvests its cash flows into higher-yielding investments. Aflac's strong capital position and stellar cash management make it another trustworthy dividend stock for your diverse portfolio.
Final word
Companies that raise their dividend payouts can be a great source of reliable dividends. However, like all investments, they aren't without risks. Things could impact the businesses and force them to cut their payout unexpectedly. That's why it's important to diversify across stocks, even if you feel like you can reasonably trust one.
With that said, these three stocks have solid businesses and a history of dividend raises, making them appealing stocks to provide passive income as part of a diversified stock portfolio.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moody's and S&P Global. The Motley Fool recommends Aflac. The Motley Fool has a disclosure policy.
