The crises in Ukraine has created a buying opportunity for some of the top rated dividend-paying stocks. Each month, we review over 1500 dividend-paying companies to find the top rated stocks based on yield, value, growth and performance using the DSO rating system. The dividends of many companies are safe for now, but without higher income growth, they may face challenges increasing dividend payouts down the road. Let's take a look at 5 of the top rated stocks from our March ratings list.
Community Bank System (NYSE:CBU)
DSO Rating: 99
Community Bank System is trading at 17 times earnings with a 3% dividend yield. The company has a free cash flow yield of 8.3% which is more than twice as high as the dividend yield. This is closely related to the solid payout ratio of 53%. Over the last 12 months, the stock has returned 28% to shareholders. We'd like to see a slightly higher yield to move this stock up to the 100 point rating. The company certainly has room to move the dividend higher, but has slowed dividend growth in the last year. CBU has increased its dividend for 21 consecutive years, which makes it a favorite among many dividend growth investors.
Genuine Parts Company (NYSE:GPC)
DSO Rating: 98
Genuine Parts is trading at just under 20 times earnings with a yield of 2.5%. Free cash flow yield is strong for GPC at 6.45%. This dividend safety metric is verified by the low payout ratio of 47%. The stock is up over 25% in the last year. Dividend growth has been one of GPC's strongest assets with investors over the last few years, with a 17% 5 year dividend growth rate. The company has increased its dividend for an amazing 57 years. A higher yield would improve the DSO rating of this stock, but the dividend growth looks sustainable and should continue to drive this stock higher.
Kimberly-Clark Corp (NYSE:KMB)
DSO Rating: 97
Kimberly-Clark trades at just under 20 times earnings with a yield of 3%. The free cash flow yield of 5% and payout ratio of 59% indicate that the dividend safe. This is backed up by a 5% 3 year dividend growth rate which is closely in-line with the 7% 5 year dividend growth rate. KMB has increased its dividend for 41 years. The stock has risen close to 18% in the last year. While the dividend fundamentals are strong, they are right on the border of moving to a lower rating. We'd like to see faster income growth from KMB before increasing its rating.
Seagate Technology (NASDAQ:STX)
DSO Rating: 96
Seagate trades at just 11 times earnings with a 3% dividend yield. The company pays out a small portion of its profits in the form of a dividend with a 25% payout ratio and a free cash flow yield of 11.4%. The 5 year dividend growth rate of 27% shows that STX is dedicated to moving their yield higher, but the low income growth rate of just 4.5% is concerning. Income growth needs to accelerate, but with the way the company has been boosting the dividend, we believe management is confident they will get the job done.
Johnson & Johnson (NYSE:JNJ)
DSO Rating: 94
Johnson & Johnson trades at just under 20 times earnings with a yield of 2.9%. It has a free cash flow yield of 5.3% and a payout ratio of 53%, which indicate that the company will have no problem paying dividends to shareholders, despite its meager 1.2% 3 year income growth. While JNJ has increased its dividend for 51 consecutive years, it is trading at a premium to its income growth. We would like to see earning accelerate over the next 2 years before we can increase the rating to the 95+ range.
Disclosure: I am long KMB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.