Six High Yielding Dividend Aristocrats for 2011

Includes: ABT, CLX, JNJ, KMB, LEG, PBI
by: Avi Morris

2010 has been a good year for many stocks. The Dow is up 8% after a stellar recovery last year. As usual, not all stocks participated equally. Generally, the Dividend Aristocrats have been laggards even though they have continued raising dividends. This article takes a look at 6 of the highest yielding Dividend Aristocrats, each with a minimum yield of 3%.

(1) Pitney Bowes (NYSE:PBI) is the highest yielding stock, with one of the highest yields on the NYSE. Its primary business is providing mail services for businesses. It had a tough decade with mostly sideways earnings. However, the dividend was raised every year, allowing it to become an S&P 500 Dividend Aristocrat (more than 25 consecutive years of dividend increases). Detractors say mail will disappear, which has hurt PBI with a stagnant stock price and a yield near what's available on junk bonds. But PBI has become a major software supplier of communication services and has expanded overseas business. The company faces challenges with less emphasis on traditional mail services, although direct mail (advertising) remains a good business. PBI should increase the annual dividend by 2¢ early next year. It is a play on a recovering economy that will allow companies to increase corporate expenditures. Because of the exceptionally high yield, this stock is only appropriate for aggressive investors seeking high yields and a growing dividend.

(2) Leggett-Platt (NYSE:LEG) is an old line company (founded in 1883) that manufactures components for bedding, residential furniture, office furniture and auto seat support, a business difficult for many to understand. The recession hurt business severely, the company is only now beginning to recover. After a substantial increase in the dividend in 2008, annual increases have been a modest 4¢ in the last 2 years which will likely continue until the payout ratio is reduced. Finances are strong, allowing LEG to have a major treasury share repurchase program. The stock has appreciated over the last 10 years and has a yield near 5%.

(3) Kimberley Clark (NYSE:KMB) is a 138 year old company which has paid annual dividends since 1935. Familiar brand names include Kleenex, Scott, Cottonelle, Viva and Kotex. Earnings in this decade have increased only at a modest rate but the annual streak of higher dividends was extended. Its P/E is less than 13X and offers a yield above 4%.

(4) Abbott Labs (NYSE:ABT) is a large global pharmaceutical company with over $30 billion in sales, 55% of sales coming from outside the US. Sales doubled between 2002 and 2009 with 4 broad lines of health care products: pharmaceutical, nutritional, diagnostics and vascular. The P/E ratio is only 11X and the stock offers a yield of nearly 4%.

(5) Johnson & Johnson (NYSE:JNJ) is one of the largest healthcare companies in the world. The 3 divisions are: Medical Devices & Diagnostics, Pharmaceutical and Consumer. The Consumer division has popular brand names: Tylenol, Motrin, Pepcid, Splenda and Listerine Finances are exceptionally strong. It's one of a handful of companies which still has the elite AAA credit rating. The EPS at JMJ is pushing $5 with a P/E ratio of 13X and a yield of 3½%.

(6) Clorox (NYSE:CLX) is a leading homecare products company which sells around the world. Products include: Armor All, STP, Scoop Away, Kingsford, Match Light, Hidden Valley, K C Masterpiece, Brita & Glad bags. Its business model is building big-share brands in midsized categories globally. The P/E ratio is about 14X and the stock yields more than 3%.

Their lack of participation in the market recovery of 2010 spells opportunity for value investors. P/E ratios are moderate and yields are attractive. They are worldwide companies which expect a major portion of earnings growth to come from overseas business, especially in eastern Asia. Strong finances have allowed them to invest billions of dollars to repurchase treasury stock. They continued raising dividends even through a financial meltdown. The ones with the high yields have longer descriptions, not because they are preferred, rather that their greater risk factors require additional explanation. The list gives ideas for good returns next year from appreciation and moderate to high yields.

Disclosure: I am Long PBI.