Hersh Cohen, co-chief investment officer at ClearBridge Investments, explains why he likes US retailer Wal-Mart Stores (WMT: NYSE).
"This has been a wonderful year so far for US dividend increases," says Mr Cohen. "The number and extent of increases that have already occurred this year have exceeded even our most optimistic views, reinforcing our long-held belief that owning quality companies with the ability to deliver rising income will continue to pay off.
"Several major names have announced dividend increases in the first part of 2013. Perhaps most notably, Wal-Mart Stores increased its payout by 18.2 per cent and has grown it every year since it began paying a dividend in 1974.
"Certain sectors stand out: whether in consumer staples, high-quality diversified industrial sectors or technology, we are likely to find very attractive investments that are not overvalued.
"What we are looking for is companies that optimise the combination of current income and growth. We are a long-term advocate of dividend stocks, fitting in with our philosophy of buying good companies at fair prices and holding them for long periods of time. We focus on companies with superior business models, reflected in a high-quality balance sheet and dominance in their industry. We prefer companies making products people want or need, and tend to be used up and replaced regularly - what used to be called the razor blade effect.
"Second, we want companies with strong free cash flow, which is deployed to generate sustainable growth and reward shareholders.
"We believe the reasons for owning companies with the ability to pay rising dividends have been amply demonstrated so far in 2013. And while I do not expect the market to keep rising at the rate seen since the start of the year, we remain constructive on longer-term dividend and earnings prospects for its holdings."
