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By Ahmed Ishtiaq

A lot of investors think that dividend stocks are boring and do not provide high-return opportunities. However, this notion is completely wrong; dividend stocks often prove to be the best investments and generate more return than non-dividend paying stocks. Of course, dividend payers do not offer the thrill of high-growth and high-volatility associated with small-cap and high-growth companies. Most of the dividend payers are operating in mature industries with low-growth prospects. However, low growth does not mean low returns.

On the other hand, dividend stocks have a special pull for some investors. Especially those investors who are living off dividend payments and do not have another source of income. We try to serve our readers with an interest in dividend stocks by highlighting best dividend picks. For this piece, I have chosen three stocks that I believe will continue to pay dividends for the foreseeable future. I believe these companies have the financial muscle and cash flows growth to increase dividend in the future.

Johnson & Johnson

  • Johnson & Johnson (NYSE:JNJ) is a leader in the pharmaceutical, medical device and consumer products industries. The company has three divisions: pharmaceutical, medical devices and diagnostics, and consumer. Pharmaceutical division currently represents close to 36% of total sales; however, device segment is growing rapidly and will become the biggest contributor toward revenue.
  • Revenue growth for Johnson & Johnson was almost stagnant between 2009 and 2010. However, since 2011, revenue growth has picked up and trailing twelve months revenue stands at $65.9 billion, compared with $61.5 billion at the end of 2010. However, operating expenses have grown at a higher rate than revenue; as a result, operating margin and EPS has decreased for the company over the past year.
  • I always look at the free cash flows of the company while recommending a stock for its dividends. For me, the firm should be able to generate enough free cash flow to meet its dividend payments. Ideally, there should be enough room in the payout ratio based on free cash flows to grow dividends in the future. At the moment, trailing twelve months free cash flows stand at $12.5 billion for the company. On the other hand, cash dividends for the past twelve months stand at $6.5 billion. Payout ratio for the company based on free cash flows is just above 52% at the moment. The payout ratio is not very high, and there is still enough room for the company to grow dividends in the future.
  • The company has paid a cash dividend to shareholders every year since 1944 and has increased its dividend payments for 50 consecutive years. At the moment, JNJ pays an annual dividend of $2.44, yielding 3.50%.
  • Johnson & Johnson's capital expenditures have been going up slowly over the past three years. If the trend continues, free cash flows may come down for the company, and payout ratio will go up. However, current payout ratio is fairly manageable for the company and dividends should not face any trouble.

ONEOK Partners

  • ONEOK Partners (NYSE:OKS) engages in the gathering, processing, storage and transportation of natural gas and natural gas liquids. The partnership's interstate pipelines carry nearly one-fifth of the gas exported from Canada to the United States. ONEOK Partners' largest segment is its NGL business, which is growing rapidly thanks to multiple recent projects.
  • ONEOK revenue growth has been exceptional in the past three years. However, during the past twelve months, revenue has come down for the firm. Trailing twelve months revenue stands at $10.4 billion, compared with $11.3 billion reported at the end of 2011. Nonetheless, operating income has increased for the firm and EPS for trailing twelve months is $3.62, compared with $3.35 reported at the end of 2011.
  • During the past twelve months, there was an increase of $836 million in the cash position of the company. At the same time, cash dividends of ONEOK stood at $710 million. Being a partnership, the firm distributes the majority of the cash generated through operations to its shareholders.
  • At the moment, annual cash distributions stand at $2.74 per share, yielding 5.07%. Distributions have increased by 5.30% per year over the past five years.
  • Pipelines in the industry charge fees on volumes of carbons transported that are sufficient to guarantee a rate of return on assets, as well as the ability to recover invested capital. Furthermore, the company has positioned itself nicely for future growth by focusing on natural gas liquids. Recent projects of the company have increased the weight of natural gas liquids in the portfolio of the company.

Leggett & Platt

  • Leggett & Platt (NYSE:LEG) engineers components and products for a variety of uses. Its springs and spring units are used in bedding and chairs. The company also makes headboards, die-cast products for barbecue grills and lighting fixtures, and store displays and shelving.
  • Solid revenue growth continued for the company over the past three years. However, revenue growth has slowed a little during the past twelve months. Trailing twelve months revenue stands at $3.7 billion, compared with $3.6 billion reported at the end of 2011.
  • At the moment, free cash flows are growing for the company. LEG has generated free cash flows of $296 million over the past twelve months, compared with $254 million reported at the end of 2011. Over the same period, the company paid cash dividends of $156 million. Payout ratio based on free cash flows is just below 52% for the company, which should give it enough room to grow dividends in the future.
  • Currently, the stock pays an annual dividend of $1.16, yielding 4.23%. The company has a long history of dividend payment, and it has never cut its dividends.
  • The company does not operate in a fancy and high growth industry like technology. However, the growth is expected to be solid for the company. I expect the company to grow revenue at a low single-digit growth rate and EPS at close to 10%. Three-year average EPS growth rate for the company currently stands at over 12%.
Source: 3 Dividend Stocks For Solid Yield