The Best of the Best Dividend-Paying Stocks
Over the past few years there have been unprecedented swings in the major indexes, scaring some investors out of the markets altogether. What people don't realize is that successful investing is a matter of continuous performance, not instantaneous performance. That's why we like dividend-paying stocks . Over time, dividends and reinvestment can account for 85%-90% of total stock market returns. In some cases, the dividends are so steady and increase so much that you actually make more in dividends than you paid to buy the stocks that produce them. But before you go hunting for the best dividend-paying stocks, let's set some ground rules for evaluating which ones are most valuable. First, a good cutoff is a stock with 3% yield or more, and a payout ratio less than 60%. Any higher payout ratio would indicate that the company cannot sustain the dividends, manage debt and grow at the same time. Second, look for companies that have price/earnings ratios of less than 25 and a solid history of paying dividends. This establishes a solid benchmark for dividend stocks and their fundamentals. Sometimes a dividend stock can look great because it has a 10% yield, but you have to look at the other numbers to decide if it's a worthy investment. With that said here are some of the best dividend-paying stocks out there right now. To continue reading, please click here...
Over the past few years there have been unprecedented swings in the major indexes, scaring some investors out of the markets altogether.
What people don't realize is that successful investing is a matter of continuous performance, not instantaneous performance.
That's why we like dividend-paying stocks.
Over time, dividends and reinvestment can account for 85%-90% of total stock market returns.
In some cases, the dividends are so steady and increase so much that you actually make more in dividends than you paid to buy the stocks that produce them.
But before you go hunting for the best dividend-paying stocks, let's set some ground rules for evaluating which ones are most valuable.
First, a good cutoff is a stock with 3% yield or more, and a payout ratio less than 60%. Any higher payout ratio would indicate that the company cannot sustain the dividends, manage debt and grow at the same time.
Second, look for companies that have price/earnings ratios of less than 25 and a solid history of paying dividends.
This establishes a solid benchmark for dividend stocks and their fundamentals. Sometimes a dividend stock can look great because it has a 10% yield, but you have to look at the other numbers to decide if it's a worthy investment.
With that said here are some of the best dividend-paying stocks out there right now.
The Best Dividend-Paying StocksBest of the Dow- Chevron Corp. (NYSE: CVX): While AT&T Inc. (NYSE: T) has the highest yield in the Dow, its payout ratio is over 200%, immediately dropping it from our list. Chevron sports a dividend yield of 3.5% with a very nice 26% payout ratio. The one-year target price for Chevron is $124, almost a 20% premium from the current $103.45 share price. Chevron has increased its dividend for 24 consecutive years. If it keeps that streak up next year it will join the elite Standard & Poor's "Dividend Aristocrat" list of companies that have raised dividends for 25 straight years.
Best Energy - ConocoPhilips (NYSE: COP): While many dividend-paying energy stocks have yields above 9% or 10%, many also have unsustainable payout ratios. ConocoPhillips is an exception and makes the list with a 4.8% yield and a low 29% payout ratio. On May 1 ConocoPhillips split into two companies, ConocoPhillips and Phillips 66. This spin off should create a lot of potential growth for Conoco. The one-year target price is 18% above its recent stock price of $54.40.
Best Tech - Intel Corp. (Nasdaq: INTC): Since Apple Inc. (Nasdaq: AAPL) has not yet issued its dividend and cannot qualify for the list I decided to go with Intel as the leading tech dividend-paying stock. Intel currently offers a 3.2% yield and has a payout ratio just above 35%. In a sector that doesn't have a lot of dividend-paying companies, Intel stands out with its dividend history. Over the past 20 years Intel has increased its annual dividend 18 times. Intel is up 14% in 2012 and has a target price of $30, a 9% premium from its current price to go along with its dividend yield.
Best Recession Proof - General Mills Inc. (NYSE: GIS): What could be more recession proof than cereal? Well, maybe one or two things are, but almost everyone loves cereal and General Mills makes practically all the cereal anyone eats. If rough economic times continue, look to General Mills for stability. It boasts a 3.2% yield, 52% payout ratio and an average target price of $42.65, up over 10% from its current price. But what makes this such a recession-proof stock is its ultra-low beta of 0.1 - you can't beat that.
Best Global - ABB Ltd (NYSE ADR: ABB): ABB, an innovating company based in Switzerland, is a global leader in power and automation technologies that narrowly beat out Siemens AG (NYSE: ADR: SI) for the best global dividend-paying stock. ABB sports a healthy 4.3% yield with a manageable payout ratio of 50%. The stock has been hurt over the past year due to the Eurozone debt crisis, but analysts have a target price for the next twelve months of $25.50, a 55% premium from its current price.
Best ETF- SPDR S&P Dividend ETF (NYSEARCA: SDY): This fund tracks the S&P High-Yield Dividend Aristocrats Index. It holds 60 companies from the S&P 1500 Index that have lifted their dividends at least 25 straight years. Most are high quality large-cap stocks that trade at reasonable prices. The fund offers a 3.2% yield.
There are many exchange-traded dividend funds as well as mutual funds that offer a similar investment. If you are interested in these just make sure to check their major holdings, risk, expense ratios, yields and returns to make an educated judgment.
One final thought: The opportunity in these investments is perfect for this market environment. With some stocks at cheap prices, now's the perfect time to consider these dividend-paying stocks and dividend funds.
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Tags: dividend funds, dividend paying stocks, dividend-paying companies, Dividends, Energy, price earnings, returns, Stock Market, Yields
That's why we like dividend-paying stocks.
Over time, dividends and reinvestment can account for 85%-90% of total stock market returns.
In some cases, the dividends are so steady and increase so much that you actually make more in dividends than you paid to buy the stocks that produce them.
But before you go hunting for the best dividend-paying stocks, let's set some ground rules for evaluating which ones are most valuable.
First, a good cutoff is a stock with 3% yield or more, and a payout ratio less than 60%. Any higher payout ratio would indicate that the company cannot sustain the dividends, manage debt and grow at the same time.
Second, look for companies that have price/earnings ratios of less than 25 and a solid history of paying dividends.
This establishes a solid benchmark for dividend stocks and their fundamentals. Sometimes a dividend stock can look great because it has a 10% yield, but you have to look at the other numbers to decide if it's a worthy investment.
With that said here are some of the best dividend-paying stocks out there right now.
The Best Dividend-Paying StocksBest of the Dow- Chevron Corp. (NYSE: CVX): While AT&T Inc. (NYSE: T) has the highest yield in the Dow, its payout ratio is over 200%, immediately dropping it from our list. Chevron sports a dividend yield of 3.5% with a very nice 26% payout ratio. The one-year target price for Chevron is $124, almost a 20% premium from the current $103.45 share price. Chevron has increased its dividend for 24 consecutive years. If it keeps that streak up next year it will join the elite Standard & Poor's "Dividend Aristocrat" list of companies that have raised dividends for 25 straight years.
Best Energy - ConocoPhilips (NYSE: COP): While many dividend-paying energy stocks have yields above 9% or 10%, many also have unsustainable payout ratios. ConocoPhillips is an exception and makes the list with a 4.8% yield and a low 29% payout ratio. On May 1 ConocoPhillips split into two companies, ConocoPhillips and Phillips 66. This spin off should create a lot of potential growth for Conoco. The one-year target price is 18% above its recent stock price of $54.40.
Best Tech - Intel Corp. (Nasdaq: INTC): Since Apple Inc. (Nasdaq: AAPL) has not yet issued its dividend and cannot qualify for the list I decided to go with Intel as the leading tech dividend-paying stock. Intel currently offers a 3.2% yield and has a payout ratio just above 35%. In a sector that doesn't have a lot of dividend-paying companies, Intel stands out with its dividend history. Over the past 20 years Intel has increased its annual dividend 18 times. Intel is up 14% in 2012 and has a target price of $30, a 9% premium from its current price to go along with its dividend yield.
Best Recession Proof - General Mills Inc. (NYSE: GIS): What could be more recession proof than cereal? Well, maybe one or two things are, but almost everyone loves cereal and General Mills makes practically all the cereal anyone eats. If rough economic times continue, look to General Mills for stability. It boasts a 3.2% yield, 52% payout ratio and an average target price of $42.65, up over 10% from its current price. But what makes this such a recession-proof stock is its ultra-low beta of 0.1 - you can't beat that.
Best Global - ABB Ltd (NYSE ADR: ABB): ABB, an innovating company based in Switzerland, is a global leader in power and automation technologies that narrowly beat out Siemens AG (NYSE: ADR: SI) for the best global dividend-paying stock. ABB sports a healthy 4.3% yield with a manageable payout ratio of 50%. The stock has been hurt over the past year due to the Eurozone debt crisis, but analysts have a target price for the next twelve months of $25.50, a 55% premium from its current price.
Best ETF- SPDR S&P Dividend ETF (NYSEARCA: SDY): This fund tracks the S&P High-Yield Dividend Aristocrats Index. It holds 60 companies from the S&P 1500 Index that have lifted their dividends at least 25 straight years. Most are high quality large-cap stocks that trade at reasonable prices. The fund offers a 3.2% yield.
There are many exchange-traded dividend funds as well as mutual funds that offer a similar investment. If you are interested in these just make sure to check their major holdings, risk, expense ratios, yields and returns to make an educated judgment.
One final thought: The opportunity in these investments is perfect for this market environment. With some stocks at cheap prices, now's the perfect time to consider these dividend-paying stocks and dividend funds.
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Why Dividend-Paying Stocks Should be on Your "Buy" List - Money Morning:
Dividend Stocks: How to Soften the Bear’s Short-Term Bite - Money Morning:
How to Pick Winning Dividend Stocks
Tags: dividend funds, dividend paying stocks, dividend-paying companies, Dividends, Energy, price earnings, returns, Stock Market, Yields