Today I wanted to take a look at five great stocks that pay dividends. I think that these stocks provide investors with a great investment opportunity for 2013 and beyond. These are some of the top dividend paying stocks out there, as they are all in the S&P 500 and/or the Dow Jones Industrials. Furthermore, they are recognized as market leaders in their industries when using market share as an indicator. With the uncertainty in the global economy, and the economic growth in the U.S. gaining steam slowly, dividend paying stocks are a great way to capture some returns. These five companies have high market capitalizations and strong brand recognition, and that is what I like to see when I own a dividend paying stock.
The first company I would like to highlight on this list is Altria (MO). This company has the largest share of the U.S. tobacco market, as it manufactures Marlboro and other cigarettes for sale. Altria not only has its core business to offer returns to investors, but also has other things going for it. It has a 27.1% stake in SABMiller, which offers Altria some diversification from its flagship business. It also is involved in the wine business and it has a financial services division which is growing in revenue. The company has a trailing P/E ratio of 17.33 and a forward P/E ratio of 13.97 as of 12/12/2012 per Yahoo! Finance. The thing that I like about Altria's dividend is that it has raised it consecutively for many years. The following quarterly dividend payout is per Yahoo! Finance historical price dividend information. This is for the quarterly dividend payouts after the spin off of Phillip Morris International (PM). It pays these dividend amounts quarterly and the quarters that the payout was left the same are not included in this chart.
This was concluded most recently with a dividend increase in September of 2012 raising the quarterly dividend payout to .44 per share. As you can see, Altria has a history of increasing the dividend and the current dividend yield is 5.30%.
The next company I would like to highlight is AT&T (T). This company is a leader in U.S. market share for telecommunications companies, right up there with Verizon (VZ) and well ahead of Sprint (S). Verizon, in fact, was a spin off from the original AT&T many years ago. This company has a great history of rewarding shareholders with dividends and spin offs. Here is a great article offering some reasons why buying AT&T stock is a good idea. AT&T also has a long history of increasing the dividend. Per Yahoo! Finance, the trailing P/E ratio for AT&T is 45.62 and the forward P/E ratio is 13.58. Here are the following recent dividend quarterly payouts for AT&T, including only the quarters where the dividend was increased. It pays this amount each quarter.
Slowly but surely, AT&T is raising the dividend. It may not be a company that has a high dividend growth rate, but it is a reliable company that has a current dividend yield of 5.30%.
Next, we have CenturyLink (CTL). The stock has a current dividend yield of 7.60%. This company has a current market capitalization of $24.39 billion. CenturyLink has grown tremendously over the years through its acquisitions of Embarq, Qwest, and Savvis. The acquisition of Savvis has immediately made it a great company when it comes to the cloud. This technology has CenturyLink poised to grow in the future as it looks to gain widespread adoption by businesses all over the world. I am a CPA and I know that people want to and are beginning to use and implement the cloud. The trailing P/E ratio for CenturyLink is 37.21 and the forward P/E ratio is 14.69. The dividend payout quarterly rate has been .725 per share since March of 2010. Prior to that, it was .70 per quarter starting in September of 2008. July of 2008 was when it had its first large quarterly dividend payment, .632 for that quarter. Prior to that, the company was not as large and did not pay this good of a dividend. While Centurylink has not raised its dividend since March of 2010, the fact remains that it is expected to earn $2.66 this year per analyst consensus estimates. Maintaining a dividend that has a yield of 7.60% is very impressive to me. I feel that this company has many promising opportunities ahead of them including their Prism television package, along with their core telephone and internet service provider services.
Another company that currently has a very nice dividend yield is Reynolds American (RAI). This manufacturer of Camel, Pall Mall, Kool, Doral, Salem, Misty, and Capri cigarettes has a large market share in the tobacco industry as they are number two in the U.S., trailing only Altria. It is also well entrenched in the smokeless tobacco market also, with the Grizzly and Kodiak brand names leading the way. Reynolds American has a fairly large market capitalization of $23.96 billion as of 12/12/12. The trailing P/E ratio for Reynolds American is 17.17, and the forward P/E ratio is 13.74. The current dividend yield is 5.50%. Reynolds also has a history, and a recent history, of rewarding shareholders with dividend increases. The following is a chart of its quarterly dividend payouts again only highlighting the quarters when the dividend payment was increased.
It also split the stock 2 for 1 in November of 2010. I owned the stock this year when it raised the dividend in June, which was a nice surprise for me. Per a Yahoo! Finance historical price chart, in the week of February 1, 2010, the stock price of Reynolds American was $26 (taking the split into account). The stock price as of 12/12/12 was $42.87. The 52 week high this year is $46.93. This has been a nice price increase, especially for a stock that pays this great of a dividend.
Finally, I would like to highlight McDonald's (MCD). Out of all of the stocks mentioned in this article, McDonald's has the lowest current dividend yield (3.40%). However, McDonald's has been increasing their dividend payout by a large percentage recently. I like McDonald's because they are one of the most, if not the most widely recognized names for fast food in the world. I enjoy their food and coffee. Investors in McDonald's recently were relieved to see that McDonalds' same store sales in November 2012 increased. I think it is important to note here, that McDonald's' share price is at a nice level in my opinion. The 52 week high is $102.22, and the 52 week low is $83.31. McDonald's closed on 12/12/12 at $89.31, so I personally think this is a great entry point if you wanted to buy shares. The following is a chart with recent quarterly dividend payout amounts showing only the quarters where the dividend was raised.
As you can see in the chart, the dividend in 2012 increased 10% from the amount in 2011. This is a great dividend increase, especially from a company as well known and stable as McDonald's. Its current market capitalization is $89.66 billion.
There you have five great dividend stocks for 2013. These companies are leaders in their respective markets, and in my opinion are great choices for an income investor.
Additional disclosure: I have covered calls against some of my positions in CTL, MO, RAI, and T.