The 10 Best U.S. Dividend Stocks 42 comments
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In everything we do, we always want to be the best or be associated with the best. You never hear fans yelling, ‘We’re number 2, we’re number 2′, while holding two fingers in the air. The same is true when selecting dividend stocks.
This is an article that I started to write several times, but would always stop after getting mired in the details. My natural tendency is make every question an analytical exercise and solve it by modeling and crunching numbers.
This time, I will show some restraint and take a little different approach by relying more on my subjective instincts. To that end, here are my selections for the 10 best U.S. dividend stocks:
10. Automatic Data Processing Inc. (ADP) – Analysis
ADP is one of the world’s largest independent computing services companies, provides a broad range of data processing services. The last slot was the most difficult to fill, due to the number of worthy companies. I considered all the Honorable Mentioned companies listed below and it came down to ADP and GPC. ADP gt the nod due its historic low debt levels and dividend payout.
9. Wal-Mart Stores (WMT) – Analysis
WMT Inc. is the largest retailer in North America. Great management, business plan and execution. It would have ranked higher, but WMT’s dividend yield tends to be lower end of my acceptable range.
8. The Coca-Cola Company (KO) – Analysis
KO is the world’s largest soft drink company. The Coca-Cola name is the world’s most recognizable trademark. For those who see no value in intangibles, try selling carbonated sugar water under another name.
7. McDonald’s Corporation (MCD) – Analysis
MCD is the largest fast-food restaurant company in the world. This company has grown its dividends at an incredible rate. Unfortunately, that is likely to slow, but MCD’s international presence will benefit to its shareholders in the future.
6. Abbott Laboratories (ABT) – Analysis
Abbott Laboratories is engaged in the discovery, development, manufacture and sale of a diversified line of healthcare products. Not the biggest or most well known drug company, but the one that arguably has one of the better track records.
5. Emerson Electric Co. (EMR) – Analysis
EMR primarily makes backup power equipment for telecom and Internet providers and users, climate control components, and electric motors. Industrials are not supposed to do well in recessions. Someone forgot to tell EMR. It has endured some bumps in the road, but has held up quite well.
4. SYSCO Corporation (SYY) – Analysis
SYY through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for foodservice industry in the United States and Canada. This is a company that continues to perform in the face of expert predictions that it won’t.
3. 3M Co. (MMM) – Analysis
MMM is a diversified technology company with a presence in various businesses. This is a company I really like. Problem is so do a lot of other people and institutions. It is a stock you have to watch for the right entry point. I bought in March when the stock was trading in the high 40’s, it is now trading in the low 70’s.
2. The Procter & Gamble Company (PG) – Analysis
PG is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries. Good management capable of adjusting when necessary. Currently working to adjust to new market dynamics of the economic downturn.
1. Johnson & Johnson (JNJ) – Analysis
JNJ engages in the manufacture and sale of various products in the health care field worldwide. This was an easy selection for my top spot. Though not perfect the company has a history of making good decisions and executing on them.
The following companies earned an Honorable Mention:
- Genuine Parts Co. (GPC) – Analysis
- United Technologies Corp. (UTX) – Analysis
- Nucor Corporation (NUE) – Analysis
- PepsiCo, Inc. (PEP) – Analysis
That’s my 10 best U.S. dividend stocks. These are based on what stocks I believe will perform well as income investments over-time. Most are not good buys today, but are ones that I am always watching. Obviously, there is a great deal of subjectivity in a list like this. I would love to see your 10 best dividend stocks (doesn’t have to be U.S.)
Disclosure: Long ABT, WMT, KO, MCD, ADP, EMR, SYY, MMM, PG, JNJ, GPC, UTX, NUE, PEP. See a list of all my income holdings here.
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This article has 42 comments:
Starving sergeant
I've seen the analytical approach that you take, detailed in your other article: "3 Dividend Stocks with a Perfect Risk Score".
I agree with a simple approach to assessing the historical capability of a firm's ability to maintain its dividend.
However, I question the utility of an approach that relies mainly on historical trends in a company's dividend policy. Unfortunately, in the market that we are in, it's hard to make a bet on company stability without examining the business model of firm as a whole and whether that is sustainable. For example, just over this downturn, many companies which were thought to have rock solid dividends, turned around and slashed away their dividends in a bid to conserve cash. Examples include Dow Chemicals (DOW), GE, Pfizer (PFE), Motorola (MOT), Textron (TXT), CBS Corp (CBS). For each of the above-mentioned companies, I think few people prior to the downturn, would have bet their money on these guys cutting their dividends. At that point in time, before the crisis, it is very likely that most of these companies would have attained the highest rating through your approach.
The additional evaluation of fundamental ratios definitely strengthens the approach you mention though. Without being overly critical, I'd suggest that an examination of the sustainability of a company's business model under times of stress, might be very useful in setting apart the real rock solid dividend providers from the other weaker companies. Would love to hear your take on this.
For more analysis, check out my blog: youngandinvested.com
On Oct 08 09:01 AM Iowa Corn wrote:
> FLY used to be good,50cents/share dividend at $ 6/share until they
> lowered dividend to 20 cents /share quarterly.
This list could have been from 10 years ago, or 20, or 30.........so it's well past time to get into the 21st Century! Old school thinking has its good points in specific areas, but this is not one of them.
On Oct 08 09:58 AM Leif Peterson wrote:
> My guess is that the dividend yields of these stocks are low, and
> in the 3-4% range. There are other well run US corporations whose
> yields are twice as high, whose risk of reducing dividend payouts
> is low. These other companies have also increased their dividend
> yield and have shown increased earnings through the recent subprime
> mortgage crisis of Sept/Oct '08.
I don’t have Clue #1 how I would rank a Top 10 list, and am reluctant to tease my remaining sanity trying to figure it out.
But to echo what some others have noted, neither the list nor runner-ups here included any nominees from the energy or financial sectors, so for some diversification I might look at Dividend Achiever Chevron (CVX) at a 3.9% yield and 5-yr dividend growth rate of 12% (according to Reuters) and Aristocrats Exxon-Mobil (XOM 2.5% and nearly 10%) and Chubb (CB 2.8% and nearly 13%).
I realize your list is about future dividend performance, not past accomplishments, so I’m not sure these would stand up to your analytics (Though I guess not, since they didn’t make the list). But they might be good starter candidates for those who’d like to round out some more sectors.
Some readers might also notice there are still no utilities or telcos. But I’ll let others ring the bell for any nominees there.
Enjoyed the article and the list – can only imagine how many drafts you crunched through to get it.
Dividend history has been remarkable and steady, and it sells a product that has fairly inelastic demand.
This is where analysis of the company is very important. If you notice on the list, most of the companies are involved in repeat businesses. KO, MCD, PG, WMT JNJ... these are companies that are involved in products people eat/use every day. Its very predictable that 10 years from now, people will still be eating big macs at MCD, washing it down with coke, going to walmart to buy toothpaste and brushing their teeth with crest made by PG. If you you have a bellyache, you buy JNJ's tylenol. As long as the management does not do something crazy,these are the companies where you know the dividend will be very reliable.
On Oct 08 06:48 AM Shishir Nigam wrote:
> Dividends4Life,
>
> I've seen the analytical approach that you take, detailed in your
> other article: "3 Dividend Stocks with a Perfect Risk Score". <br/>
>
> I agree with a simple approach to assessing the historical capability
> of a firm's ability to maintain its dividend.
>
> However, I question the utility of an approach that relies mainly
> on historical trends in a company's dividend policy. Unfortunately,
> in the market that we are in, it's hard to make a bet on company
> stability without examining the business model of firm as a whole
> and whether that is sustainable. For example, just over this downturn,
> many companies which were thought to have rock solid dividends, turned
> around and slashed away their dividends in a bid to conserve cash.
> Examples include Dow Chemicals (seekingalpha.com/symbo...),
> GE, Pfizer (seekingalpha.com/symbo...), Motorola (seekingalpha.com/symbo...),
> Textron (seekingalpha.com/symbo...), CBS Corp (seekingalpha.com/symbo...).
> For each of the above-mentioned companies, I think few people prior
> to the downturn, would have bet their money on these guys cutting
> their dividends. At that point in time, before the crisis, it is
> very likely that most of these companies would have attained the
> highest rating through your approach.
>
> The additional evaluation of fundamental ratios definitely strengthens
> the approach you mention though. Without being overly critical, I'd
> suggest that an examination of the sustainability of a company's
> business model under times of stress, might be very useful in setting
> apart the real rock solid dividend providers from the other weaker
> companies. Would love to hear your take on this.
>
> For more analysis, check out my blog: youngandinvested.com
Businesses: www.swirepacific.com/e... .I'm talking my book, and hold all the names mentioned. Many thanks and good luck to all.
On Oct 08 06:48 AM Shishir Nigam wrote:
> Dividends4Life,
>
> I've seen the analytical approach that you take, detailed in your
> other article: "3 Dividend Stocks with a Perfect Risk Score". <br/>
>
> I agree with a simple approach to assessing the historical capability
> of a firm's ability to maintain its dividend.
>
> However, I question the utility of an approach that relies mainly
> on historical trends in a company's dividend policy. Unfortunately,
> in the market that we are in, it's hard to make a bet on company
> stability without examining the business model of firm as a whole
> and whether that is sustainable. For example, just over this downturn,
> many companies which were thought to have rock solid dividends, turned
> around and slashed away their dividends in a bid to conserve cash.
> Examples include Dow Chemicals (seekingalpha.com/symbo...),
> GE, Pfizer (seekingalpha.com/symbo...), Motorola (seekingalpha.com/symbo...),
> Textron (seekingalpha.com/symbo...), CBS Corp (seekingalpha.com/symbo...).
> For each of the above-mentioned companies, I think few people prior
> to the downturn, would have bet their money on these guys cutting
> their dividends. At that point in time, before the crisis, it is
> very likely that most of these companies would have attained the
> highest rating through your approach.
>
> The additional evaluation of fundamental ratios definitely strengthens
> the approach you mention though. Without being overly critical, I'd
> suggest that an examination of the sustainability of a company's
> business model under times of stress, might be very useful in setting
> apart the real rock solid dividend providers from the other weaker
> companies. Would love to hear your take on this.
>
> For more analysis, check out my blog: youngandinvested.com
On Oct 08 06:48 AM Shishir Nigam wrote:
> Dividends4Life,
>
> I've seen the analytical approach that you take, detailed in your
> other article: "3 Dividend Stocks with a Perfect Risk Score". <br/>
>
> I agree with a simple approach to assessing the historical capability
> of a firm's ability to maintain its dividend.
>
> However, I question the utility of an approach that relies mainly
> on historical trends in a company's dividend policy. Unfortunately,
> in the market that we are in, it's hard to make a bet on company
> stability without examining the business model of firm as a whole
> and whether that is sustainable. For example, just over this downturn,
> many companies which were thought to have rock solid dividends, turned
> around and slashed away their dividends in a bid to conserve cash.
> Examples include Dow Chemicals (seekingalpha.com/symbo...),
> GE, Pfizer (seekingalpha.com/symbo...), Motorola (seekingalpha.com/symbo...),
> Textron (seekingalpha.com/symbo...), CBS Corp (seekingalpha.com/symbo...).
> For each of the above-mentioned companies, I think few people prior
> to the downturn, would have bet their money on these guys cutting
> their dividends. At that point in time, before the crisis, it is
> very likely that most of these companies would have attained the
> highest rating through your approach.
>
> The additional evaluation of fundamental ratios definitely strengthens
> the approach you mention though. Without being overly critical, I'd
> suggest that an examination of the sustainability of a company's
> business model under times of stress, might be very useful in setting
> apart the real rock solid dividend providers from the other weaker
> companies. Would love to hear your take on this.
>
> For more analysis, check out my blog: youngandinvested.com/
It pays 7.5% dividend which they just recently increased by the way. And available at a reasonable PE ratio.
Check it out folks.
10. Exxon Mobil (XOM): XOM has increased its dividend every year for 26 years in a row. Additionally, the company is within 23% of 52-week low with a dividend payout ratio of 41%.
9. Abbott Laboratories (ABT): ABT has increased its dividend every year for 36 years in a row. ABT is within 22% of the 52-week low with a dividend payout ratio of 41%. I have written about ABT on September 21, 2009 displaying the altimeter for ABT on a long term basis.
8. McCormick & Co. (MKC): MKC has increased its dividend every year for 22 years in a row. Also, MKC is within 20% of the 52-week low with dividend payout ratio of 42%.
7. Becton Dickinson (BDX): BDX has increased its dividend every year for 36 years in a row. BDX is within 19% of the 52-week low with a dividend payout ratio of 27%. I mentioned BDX on May 4, 2009, suggesting that this stock should be bought. On August 19, 2009, I reiterated my claim that BDX was worthy of consideration, especially after Warren Buffett himself had jumped on board after our May 4th posting.
6. Piedmont Natural Gas (PNY): PNY has increased its dividend every year for 29 years in a row. PNY is within 16% of the 52-week low with a dividend payout ratio of 69%.
5. Northwest Natural Gas (NWN): NWN has increased its dividend every year for 54 years in a row. NWN is within 16% of the 52-week low with a dividend payout ratio of 59%. NWN has been presented by me on September 22, 2009 and finally on October 3, 2009.
4. Bard Inc. (BCR): BCR has increased its dividend every year for 54 years in a row. BCR is within 14% of the 52-week low with a dividend payout ratio of 13%. Bard Inc. was first mentioned on Dividend Inc. on April 23, 2009. At the time, I mentioned that BCR has a very low debt level which allows the company to weather further economic declines. On August 26, 2009, after gaining 10.11% in 4 months, I recommended selling this stock.
3. Weyco Group (WEYS): WEYS has increased its dividend every year for 28 years in a row. WEYS is within 13% of the 52-week low with a dividend payout ratio of 54%. Weyco, the maker of Florsheim shoes, was featured on Dividend Inc. on July 6, 2009. Two negatives for this company are that there payout ratio is so high and stock is not very liquid.
2. Cardinal Health (CAH): CAH has increased its dividend every year for 16 years in a row. CAH is within 10% of the 52-week low with a dividend payout ratio of 32%. CAH was featured on June 4, 2009 and is considered, in my opinion, one of the most underpriced healthcare stocks out there. The current low price of CAH is due to the spinoff of the CareFusion (CFN) unit. However, the upside projections of CAH are, at minimum, in the $40 range.
1. Wal-Mart (WMT): WMT has increased its dividend every year for 33 years in a row. WMT is within 8% of the 52-week low with a dividend payout ratio of 30%. WMT was first mentioned on June 18, 2009 when I pointed out the fact that with such an extended range bound price for the stock there has to be value accruing in the stock. A further examination of WMT was done on September 19, 2009, in that assessment I determined that, on a price-to-dividend basis, WMT is poised in increase in value. One significant downside for this stock is the large increase in shares outstanding in the last few years. Touc.
www.dividend.com/histo...
They spun off 2 companies in that time. You'd have a wonderful dividend portfolio including Kraft and PM if you held on.
On Oct 09 04:10 PM StockData.org wrote:
> @Darrencardinal: because MO seems to like cutting it's dividend....
> check it out
>
> www.dividend.com/histo...
And you have no MLP's? Kinder Morgan, Buckeye Pipelines, etc.?
Come on, man. No offense...well, offense...you have to do your homework better than with what you present.
Many of us here on SA could top your top ten, ten fold. Okay, at least three fold.
Pains me to be harsh on you, but please, in the future, when you're throwing out ideas on this website, do your homework a little better.
Yet, everyone of your stocks deserve attention, from those who do not pay attention.
How'd you get that blue ribbon?
Mayascribe: the author stated that these 10 companies were the results of his "subjective instincts." Nowhere did he say that these companies were a definitive listing...
The secret is to pick a put option at a strike price below the current price which expires in the next month or so. Sell that put and keep enough cash on hand to buy the stock if the put is exercised at the strike price.
If the price doesn't go down, the put expires and you get to keep the premium (kind of a dividend). If the price does go down and the put is exercised, you own the stock at the put's strike price (and you keep the premium too). As long as you're happy to buy at the strike price, you're buying a good dividend paying stock at a discount to a price you're OK with.
Example:
WMT is trading at $49.97 as of the close on 10/9/09. There are November 09 options which expire in about 6 weeks. If you think that WMT is a good buy at $47.50, you can sell the Nov $47.50 puts for about $42 each (1 option per 100 shares) by setting aside $4750 in cash in your account.
If WMT doesn't drop below $47.50 before it expires on Nov 20, you get to keep that $42 premium for nearly a 1% return (in 6 weeks) on the $4750 you set aside. You can then repeat the exercise with December puts.
If WMT drops to $47 near expiration on Nov 20. Your put may be exercised and you will buy 100 shares of WMT for $4750, but you get to keep the $42 premium, so your net cost is actually $4708 for 100 shares of a stock you decided would be a good buy at $47.50.
It takes a bit more work, but if the stock price just waffles around the same price, you can collect significant premium income waiting for the price to decline to your buy point.
The difficulty is finding a broker who will let you sell puts backed by enough cash to purchase the shares at the strike price. They are out there if you look.
There are 3 great ones not included but the key is getting these at the right prices
On Oct 08 08:39 AM Evil B wrote:
> XOM doesn't make the list?
I've spent a lot of time in Europe and SE Asia and their brands are the hot sellers and growers. Add in huge margins and management who is dedicated to returning $ to shareholders and you have a winner.
thanks for article and good list
It would be good to review the performance of your recommendation since this article was first published. Although some would argue that a person should invest and forget when it comes to dividend paying stocks, I would say that knowing your winners and losers helps to keep your selection trim and fit. The average return of the stocks selected in my top ten has been 4.39% since 10/9/2009. I'd love to know your take on the performance since your last recommendation on October 7th.
Below is the full article link to my update on the top ten stocks.
dividendinc.blogspot.c...
Best regards,
Touc
Dividend Inc.