Rockwell Automation (ROK)

[Investorman]

3 Stocks for Dividend Income
http://www.fool.com/investing/dividends-income/2010/09/17/3-stocks-for-dividend-income.aspx

Jim Royal
September 17, 2010


Many investors lost money over the past couple of years, but the endowments at prestigious universities suffered even more. Investment performance at Harvard and Yale "badly trailed" the results at the average college, as The Wall Street Journal so delicately put it. I'm shocked -- but not because of these endowments' lackluster returns.

With exotic strategies and illiquid investments, Princeton registered a 24% loss in 2009, while Cornell took a 26% hit, and Harvard suffered a 27% drop. Compare those losses with the 18% drop for the median large endowment. Worse yet, many such institutions fund their operating expenses with the capital from endowments like these. If they don't generate capital gains, they may be forced to cut budgets and slash salaries.

So what?
Rather than relying on capital gains to sustain our own budgets, we need to seek additional safety in the power of ever-increasing dividend streams. With such a strategy, you'll never have to float debt to avoid whittling down your principal. Princeton only wishes it could say the same.

The companies below provide a dividend yield at least as high as that of the S&P 500 (about 2%), and they've grown their dividends at more than 5% per year over the past half-decade:

Company
Trailing Dividend Yield
5-Year Average Annual Dividend Growth Rate
FCF Payout Ratio
Sustainable Dividend Growth

Siemens (NYSE: SI)
2.1%
5.1%
19.3%
6.6%

Rockwell Automation (NYSE: ROK)
2.4%
10.0%
35.4%
12.3%

IberiaBank (Nasdaq: IBKC)
2.8%
8.5%
17.4%
13.0%


Source: Capital IQ, a division of Standard & Poor's. Sustainable dividend growth assumes constant payout ratio.

Each of these three companies has given us respectable dividend growth over the past five years and has even higher sustainable dividend growth rates. While these companies' yields are not at absolutely breathtaking levels, their payout ratios are very reasonable, also suggesting that higher payouts can continue.