With 10-year Treasurys hovering around 2.5% and stocks hovering around all-time highs, it's getting harder and harder to maintain a decent average yield in your dividend portfolio. So what is a long-term dividend investor to do?
Obviously, you could add more high-yielding real estate investment trusts ("REITs") and master limited partnerships ("MLPs") to your portfolio to juice your income...but these securities are inherently more risky than the average stock (hence the high dividend/distribution yield). Don't get us wrong, REITs and MLPs are a great addition to any DIY Dividend Portfolio, but we recommend that you limit your exposure to these asset classes to 25% of your total portfolio. There's no such thing as a free lunch...and don't forget that high-yield securities offer a high yield for a reason.
Non-REIT, Non MLP Stocks Yielding Over 3%
There are plenty of non-REIT, non-MLP, high-quality dividend stocks out there with yields over 3%. That said, we recently ran a screen through our rating system and came up with our "3% Yield Club." This Club is made up of 25 Non-REIT, Non-MLP Dividend stocks with the highest Parsimony Ratings that also meet this additional criteria below.
- Parsimony Rating > 60
- Dividend Yield > 3.0%
- 5 and 10-year Dividend CAGR: > 2.0%
- 5 and 10-year EPS CAGR: > 0.0% (i.e., positive growth)
We will highlight each of these stocks over the course of a 5-part series. Below is a schedule of the entire series.
- Part 1: Secretaries (stocks #21-25)
- Part 2: Treasurers (stocks #16-20)
- Part 3: Vice Presidents (stocks #11-15)
- Part 4: Presidents (stocks #6-10)
- Part 5: Chairmen/Chairwomen (stocks #1-5)
The 3% Yield Club: Treasurers
There are hundreds of stocks out there yielding over 3%, but we only picked the best of the best for our 3% Yield Club. This article highlights the 5 Treasurers (stocks #16-20). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.
#20 Procter & Gamble (NYSE:PG)
Procter & Gamble has a very high rating for Dividend Track Record (91) as the company has increased its dividend at a compound annual rate of 10.5% over the past 10 years. PG has been paying a dividend for 123 consecutive years since its incorporation in 1890 and has increased its dividend for 57 consecutive years. The company has below average ratings for Financial Stability (39) and Dividend Sustainability (35) due to its flat growth profile and its rising payout ratio. However, we think that PG is a very stable long-term dividend stock with a decent yield (3.2%).
#19 Clorox Company (NYSE:CLX)
CLX has delivered shareholders a total return of 94% over the past 5 years driven by a compound annual dividend growth rate of 9.1%. CLX has increased its dividend to shareholders every year since 1977. In addition, the stock has had a very modest maximum drawdown during the past recession of 28.4%, which has allowed CLX investors to sleep very well at night.
#18 Paychex (NASDAQ:PAYX)
Although Paychex's dividend growth rate has slowed in recent years, the company has delivered shareholders a 104% total return over the past 5 years. PAYX has a solid dividend yield of 3.4% and the board recently authorized the purchase of up to $350 million of its common stock. The company also has a very strong balance sheet with no debt.
#17 Mattel (NASDAQ:MAT)
Mattel has increased its dividend to shareholders at a compound annual rate of 13.8% over the past 10 years, including a 35% increase in 2012 and a 16% increase in 2013. The stock has struggled lately (hence the extremely low Relative Strength rating), but MAT rates relatively well in Financial Stability (81) and Dividend Track Record (88). The drop in MAT's share price over the past 6 months may prove to be a great buying opportunity for long-term investors...and it currently offers a nice yield of 3.8%!
#16 Tupperware Brands (NYSE:TUP)
Tupperware is an under-the-radar stock that has become a dividend machine recently. The company raised its dividend 72% in 2013 and it currently offers a solid yield of 3.2%. Tupperware's geographic diversity and focus on higher growth emerging economies will continue to help the company generate strong and stable cash flow in the years to come.
If you are looking to generate stable income, dividend growth investing is a great way to accomplish this goal and any one of these 3% yielders would make a nice addition to your portfolio. Note that identifying good stocks is only the starting point of building a dividend portfolio and investors should pay close attention to valuation as well when deciding whether or not to buy a stock as many stocks right now are overvalued (i.e., good stocks can often trade at bad prices).
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Disclosure: The author is long MAT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.