Dividend stocks continue to gain favor in the stock market because they help mitigate risk and drive total return. Sorting out the best dividend stocks from the rest can be a tough job, which is why I rely on the DSO rating to help me get the job done. The DSO rating considers yield, dividend growth, cash flow, payout ratio and performance.
Let's take a look at the top 5 ranked dividend-paying stocks for April 2013.
Shaw Communications (SJR)
DSO Rating: 100. This stock has been firing on all cylinders over the last 12 months. It has a dividend yield of 4.5%, free cash flow yield of 8% and a 5-year dividend growth rate of 14%. SJR has increased its dividend for 10 consecutive years.
Despite the recent drop in the stock price it is still up almost 15% in the last 12 months. This recent drop could be a great buying opportunity. Another fun fact about Shaw is that the company pays dividends monthly, which can be great for investors who want monthly income or want to compound their investment returns faster.
Leggett & Platt (LEG)
DSO Rating: 99. There isn't much we could find wrong with LEG, which is why it has a near perfect rating. The only thing holding it back from a perfect 100 point score is a higher dividend yield. LEG currently has a dividend yield of 3.5% and has increased its dividend for 41 consecutive years. It has a 5-year dividend growth rate of 8% and a payout ratio of 67%.
This stock has been on a tear over the last 12 months. It has completely outperformed the market with a 45% return. The company has a 3-year net income growth rate of 30.45% to back up its performance. I think there is still room to go in this stock.
Chevron Corp (CVX)
DSO Rating: 97. Chevron has a dividend yield of 3% and a low payout ratio of 27%. This supports the 3- and 5-year dividend growth rate of 10% and makes me believe this growth rate is sustainable. Chevron has increased its dividend for 20 consecutive years and is one of our top-rated stocks on the safe dividend list.
Chevron has a 3-year net income growth rate over 30% and is up 14% in the last 12 months. It has recently experience some downside pressure in the last few days as the price of oil has gone lower. We are approaching a very attractive valuation on CVX.
Mattel Inc. (MAT)
DSO Rating: 96. Mattel has a respectable dividend yield of 3.3% and has increased its dividend for 4 consecutive years. The company switched from annual distributions to quarterly distributions in 2011. It has a 3-year dividend growth rate of 21% and currently has a payout ratio of 57%.
Mattel has had a great track record of boosting net income and it added to that with its recent quarterly results that quadrupled net income for Q1 2013. The fundamentals of this stock are strong as it continues to destroy the competition. I expect it to continue to increase dividend distributions and drive the stock price higher in 2013.
Thomson Reuters Corp (TRI)
DSO Rating: 96. Thomson Reuters is one of those lesser talked about dividend stocks that tends to fly under the radar. It currently has a rare (in this market) 4% dividend yield combined with 8 years of consecutive dividend increases. TRI also has a 5-year dividend growth rate of 5.4%, which is the only thing holding this stock back from a higher ranking. We'd like to see a higher dividend growth rate of 7% or more from TRI.
Thomson Reuters has a 3-year net income growth rate of 35% and a payout ratio of 51%. The stock has a free cash flow yield of 6.4%, which are all indications that the company could increase the rate of dividend increases. If it does I'd be an instant buyer. It is still a very attractive investment at current levels.