The 10 Best U.S. Dividend Stocks

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.

Comments

[poortorich]

A great list. One can become wealthy holding these companies, provided they are bought at the RIGHT PRICE.

2009 Oct 08 12:53 AM

[starvin sargent]

Great research, practical and simple. Have you found and ETF or a CEF that has these picks as the highest percentage of their holdings? Have you done any correlation research on these? Also if you were to combine them into a portfolio (I have seen your selection on your site) which of them would you combine with these picks. Thanks for your hard work
Starving sergeant

2009 Oct 08 05:32 AM

[Shishir Nigam]

Dividends4Life,

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

2009 Oct 08 06:48 AM

[Evil B]

XOM doesn't make the list?

2009 Oct 08 08:39 AM

[capital pains]

ABT at $50 plus ? Excuse me, but BMY at $22 and a safe dividend of 5.4% blows ABT away .

2009 Oct 08 08:54 AM

[Iowa Corn]

Re ETF's,the best dividend return for price that I have found are AOD & AGD.These return 12 & 11 cents/share monthly at a cost currently around $9/share,although I bought when they were around $ 7.

2009 Oct 08 08:55 AM

[Iowa Corn]

FLY used to be good,50cents/share dividend at $ 6/share until they lowered dividend to 20 cents /share quarterly.

2009 Oct 08 09:01 AM

[YoYoMama]

What? 8.71% not good enough for you?


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.

2009 Oct 08 09:20 AM

[KyBec]

I'd rather buy ABT (at $44) than BMY at even $18. You have to take into account that ABT grows their dividend EVERY YEAR, and BMY does not. So in the long run, if you buy in at the right price, ABT will produce more income than BMY.

2009 Oct 08 09:39 AM

[mbkelly75]

A wonderful list - all 14 are great stocks. I might have changed the order a bit - but that is not a big deal. All are worth owning. Walmart does have a low dividend for my tastes but it's 16.17% average dividend growth rate over the last 5 years makes up for it.

2009 Oct 08 09:54 AM

[bobbobwhite]

Noticed that no ETFs or ETNs or MLPs were on the list as it is a list of only companies. That's not the important part to me.....companies....to me it's quality of the entitity and its dividend.

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.

2009 Oct 08 09:57 AM

[Leif Peterson]

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.

2009 Oct 08 09:58 AM

[whisperonthewind]

I'm with Iowa Corn, a steady monthly income holds a big draw - both in replenishing a hungry portfolio as well as helping some of us survive on unemployment. Currently, almost everything I own has a dividend of 6% or more, and those dividends are reinvesting in 50% of my holdings and building a money market account for the other 50%. That way, when I find a stock that is doing exceptionally well, I can pull some cash from that well instead of from my economy-stressed income. And should things get worse, I have a readily available cash pot to look to, rather than a credit card.

2009 Oct 08 10:03 AM

[Lightway]

Examples?


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.

2009 Oct 08 10:40 AM

[Berninvestor]

Thank you Dividends4Life. I always look forward to your articles, which I think are very helpful in today's extremely turbulent times. I have personally benefited from many of your recommendations, very solid analysis, and thoughtful comments. You are a welcome antidote to all those doomers and gloomers out there.

2009 Oct 08 10:56 AM

[eucamar]

My 10 Best U.S. are: XOM, CVX, CSX, PG, COP, JJ, WMT, MRK, HD, OXY

2009 Oct 08 11:09 AM

[Low Sweat Investing]

An interesting list. I’m glad I own some of these.

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.

2009 Oct 08 12:06 PM

[Iowa Corn]

Thanks for comments.However,why should I hold a stock that pays 20 cents /share/quarter when I have one that pays 36 cents /share/quarter for around the same price/share or less?

2009 Oct 08 12:55 PM

[Fritz Hottinger]

For what it's worth, you might want to put MGEE on your list as #10.
Dividend history has been remarkable and steady, and it sells a product that has fairly inelastic demand.

2009 Oct 08 01:08 PM

[poortorich]

Ah

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

2009 Oct 08 03:38 PM