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I am often asked by friends for advice on their next stock purchase and, of course, this results in a barrage of questions on my part: How long do you plan to hold this stock? How much risk are you willing to take on? What sort of returns are you aiming for? How much are you investing? Are you interested in any particular field? The list goes on. And there are countless things to account for when picking a company to count on: Current price; market fluctuations; the economy; earnings; ex-div dates; and so on.

But, as much as everyone would like to find the next giant growth stock, I find myself promoting the same companies over and over because they carry very, very little risk over the long term. Now, there has been great debate as to how to put together a risk-free dividend portfolio, including all sorts of screening criteria and even the notion that price points are not important. However, it can be much simpler than that, especially if you are a younger investor, like myself.

Right now there are looming inflation worries and some bears are even still predicting a double dip. Whether or not this is correct, it may mean good news for the average dividend investor. Yes, many would say that losing a chunk of your net value would be extremely disconcerting, but after reading this you’re going to want to invest in companies with stable annually increasing dividends that you don’t plan on selling in the next 10-plus years, so that when the market takes a hit, your reinvested dividends are yielding more than they would during normal market conditions.

Here are some things I look for when choosing a company. The first is strong market presence in an industry that you understand. Pick a company you like and look into the dividend situation. For instance, my father has a strange infatuation with all things Disney (NYSE:DIS), so my brother and I have been holding shares of this company since we were little, though I would never recommend it as a dividend stock. One that I would recommend is McDonald’s (NYSE:MCD); it makes hamburgers and pays a good dividend, which is pretty easy to break down as opposed to, say, General Electric (NYSE:GE) who has its feet in so many doors that it’s impossible to say exactly what it is the company does.

Next, get it for the right price. The rule of thumb here is: Fundamentals are for what to buy, technical analysis is for when to buy. Here is a good place to start (I have no affiliation with this book) and it only takes about an hour to read. A good case study here is Johnson & Johnson (NYSE:JNJ) this past summer. I knew I wanted to buy the stock and start a position, but I waited for a sell-off, which came on some negative news, and I was able to pick the shares up for $58. A good idea here is to watch the price to earnings ratio; it should be relatively low in comparison to the rest of the industry.

After timing, look for companies with a history of increasing dividends, as mentioned above. A lot of companies did not have to cut or reduce their dividends during the recession giving credence to their stability and self-assurance. This information is readily available.

Lastly, diversify your holdings. For a hypothetical example, imagine some sort of plague hits the world, killing all the world’s cows. What happens to McDonald’s, Yum Brands (NYSE:YUM), or the rest of the restaurants? Of course this is a bit outrageous, but it needed to be so to make my point. Also I would personally avoid certain industries such as automobiles, big financial institutions, and technology. Save those for a different portfolio where you’re using money that you are willing to gamble with.

With that being said, have a gander at the list below for some solid picks.

Exxon Mobil (NYSE:XOM) – A major player in the oil and gas sector that has been increasing its dividend since 1970. I would hold off on the buy though given the recent run up.

Price

P/E

Dividend Yield

5 Yr Div Growth

$84.50

13.59

2.10%

7.5%

Procter & Gamble (NYSE:PG) – Personal products that people can’t really live without. The company has been increasing its dividend for 53 years.

Price

P/E

Dividend Yield

5 Yr Div Growth

$64.30

17.53

3.00%

11.1%

Colgate (NYSE:CL) – Pretty similar to PG but has it own niche. It has been increasing its dividend for 47 years.

Price

P/E

Dividend Yield

5 Yr Div Growth

$78.42

18.19

2.70%

13.1%

Kimberly–Clark (NYSE:KMB) – Similar to the two above it, but again, with its own niche; tissues, paper towels, diapers, etc, but with a better yield. And it has increased its dividend for 38 years.

Price

P/E

Dividend Yield

5 Yr Div Growth

$65.66

14.76

4.30%

6.4%

Johnson & Johnson (JNJ) – Big name in drugs and medical devices that has handled recent lawsuits and recalls admirably. It has been increasing its dividend for 47 years.

Price

P/E

Dividend Yield

5 Yr Div Growth

$61.11

12.78

3.60%

8.8%

Dover Corp (NYSE:DOV) – Industrial conglomerate that has the third longest string of annually increasing dividends at 54 years. The yield’s not great due to a recent 50% run spanning the last 6 months or so, but the company has been making some acquisitions which will up the earnings in the future.

Price

P/E

Dividend Yield

5 Yr Div Growth

$67.75

18.32

1.70%

9.7%

PPG Industries (NYSE:PPG) – Another pick on a substantial run so price points would be important. It makes industrial paints for buildings, automobiles, and planes. Also look out for a stock split coming in the near future; it has been paying an increasing dividend for 38 years and whenever it’s got up to the 50-60 cent range, it has split.

Price

P/E

Dividend Yield

5 Yr Div Growth

$90.14

19.47

2.50%

2.0%

Genuine Parts Company (NYSE:GPC) – I did say to avoid autos, but this company makes parts for cars rather than selling cars, and its dividend has been increasing for 54 years.

Price

P/E

Dividend Yield

5 Yr Div Growth

$55.25

19.26

3.00%

4.3%

Coke (NYSE:KO) – A great of example of strong market share and a company that is here for the long term. It has been upping its dividend for 48 years and has a really low P/E.

Price

P/E

Dividend Yield

5 Yr Div Growth

$64.55

12.76

2.8%

7.6%

PepsiCo (NYSE:PEP) – Pepsi does a lot more than soda. For a review of its other brands click here. It has increased its dividend for 37 years. From a technical standpoint, this stock is pretty attractive right now.

Price

P/E

Dividend Yield

5 Yr Div Growth

$63.41

16.22

3.0%

12.0%

Altria (NYSE:MO) – Best known for Marlboro cigarettes, a product with extreme price stability. The dividend has been increasing for 42 years. It also has a very nice yield to compensate for slower price growth.

Price

P/E

Dividend Yield

5 Yr Div Growth

$24.79

13.26

6.2%

21.1%

Consolidated Edison (NYSE:ED) – My only utilities pick on this list, though I’m sure there are many others. It has been increasing its dividend for 36 years.

Price

P/E

Dividend Yield

5 Yr Div Growth

$49.02

14.13

4.9%

0.7%

Walmart (NYSE:WMT) – No need to discuss the accolades here. Expect some higher revenues if the company ever breaks into Manhattan. And it has increased its dividend for 35 years.

Price

P/E

Dividend Yield

5 Yr Div Growth

$55.38

13.71

2.2%

16.1%

Archer Daniels Midland (NYSE:ADM) – A leading name in agricultural production. For a write up on its growth prospects, click here. It has been increasing dividends for 35 years.

Price

P/E

Dividend Yield

5 Yr Div Growth

$37.65

12.43

1.7%

7.8%

McDonald’s (MCD) – Save the best for next to last. For some interesting figures, try comparing the market cap of MCD to YUM or any other public fast food restaurant; the results are pretty unbelievable. It has also been increasing its dividend for 33 years.

Price

P/E

Dividend Yield

5 Yr Div Growth

$76.13

16.62

3.2%

28.8%

Nike (NYSE:NKE) – I figured I’d make a wild pick for a company that may become one of these dividend winners in the future. Nike has established its place in the market for sports and fashion. It owns strong brands and has a dedicated following. Its been paying a dividend since 1987, which has been increasing annually since 2002. Wait for the stock to come down a bit, but Nike will be here in 20 years, and it will still be strong. Maybe by then Oregon will be wearing a reasonable number of jerseys each year, cutting frivolous spending.

Price

P/E

Dividend Yield

5 Yr Div Growth

$88.82

21.46

1.4%

13.5%

Well there you have it: 16 companies to build a diversified dividend portfolio with varying yields and growth prospects, but with the common theme of annually increasing dividends that will provide returns even in dark times.

Disclosure: I am long JNJ, DOV, PPG, MCD, MO, DIS.

Source: 16 Dividend Stocks for the Long-Term Investor