Low Profiles, High Yields

Gigantic General Electric (GE ) recently raised its dividend a fat 14%. A few days later, little Lancaster Colony (LANC ) upped its payout, too. A maker of packaged foods, candles, and car parts, Lancaster's increase came to just 4%. In one way, though, Lancaster exceeded GE: It has hiked the dividend now for 43 straight years, vs. GE's 30.

Such consistency makes both companies "Dividend Aristocrats," in the view of Standard & Poor's (MHP ). Since the early 1970s, S&P has tracked stocks that regularly boost dividends; those that do so for at least 25 straight years it dubs Aristocrats. Few make the grade. Of more than 6,000 listed U.S. stocks, just 85 qualify. In November, S&P took all of this a step further, unveiling a stock index -- the S&P High Yield Dividend Aristocrats -- comprising the 50 highest-yielding Aristocrats. It caught my eye, not because I didn't know such Aristocrats as GE and Johnson & Johnson (JNJ ) to be sterling sources of dividend income, but because I wondered: Which Aristocrats have I missed?

Plenty, it turns out. Of the 50 stocks, Lancaster and a dozen others are too small to make S&P's widely followed 500-stock index. And three of these -- ABM Industries (ABM ), Northwest Natural Gas (NWN ), and Piedmont Natural Gas (PNY ) -- aren't even big enough to make the S&P MidCap 400-stock index. With this baker's dozen of lesser-known Aristocrats in hand, I went to work to see which looked like best bets. Here are my favorites:

ABM Industries. This San Francisco company sells its janitorial, engineering, security, and parking services -- does Ampco System Parking ring a bell? -- to office-building operators nationwide. Revenue in the fiscal year ended Oct. 31 is estimated above $2.6 billion, according to S&P's Capital IQ data unit, up from $2.4 billion in the prior year. ABM's balance sheet shows no debt and cash of $43 million. Near $21 a share, the company is selling for less than 0.4 times its enterprise value.

Associated Banc-Corp (ASBC ). A leading community bank in Wisconsin, Associated has been growing steadily both internally and via selective acquisitions, which have taken it into Minnesota and Illinois. With short-term interest rates rising and long-term rates flattish, all banking companies are being squeezed. Associated has been managing nicely, however, by controlling costs and loan quality. Its write-offs so far this year are running at nearly half of last year's rate. The stock, near 33, is 12 times next year's estimated earnings.

Hillenbrand Industries (HB ). This is an easy company to overlook, given that it makes coffins, urns, and other items for burials and cremations. Funeral products and services today make up about a third of revenue; the rest comes from sales and rentals of hospital beds and other health-care equipment. Near 50 a share, the stock is trading at 15 times estimated earnings (before an expected legal settlement) for fiscal 2006, ending next September.

Lancaster Colony. With no borrowings and $156 million in cash and short-term investments, this diversified manufacturer -- Jack Daniel's mustard and Rubber Queen auto floor mats are two of its brands -- is set in December to pay out a $2 special dividend. With higher energy, freight, and raw material costs, profit margins have been suffering, but the stock has already reacted, falling under 40 from a 52-week high in September above 46. Wall Street sees Lancaster earning $2.40 a share in fiscal 2006, ending in June.

Just because these companies have raised dividends for at least 25 straight years naturally is no guarantee they will keep it up. Investors who want to spread their bets more widely can check out a new exchange-traded fund, the SPDR Dividend ETF (symbol: SDY). Sponsored by State Street Global Advisors (STT ), it tracks the S&P High Yield Dividend Aristocrats index. The fund's annual management fee is 0.3%, and it yields about 3% -- a noticeable bump up from what you can get from J&J or GE.

By Robert Barker

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