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High dividend yielding stocks are appealing to defensive investors in especially inflationary environments. We expect defensive stocks with high dividend yields to outperform the 10-year Treasuries over the next 10 years.

On the other hand, high dividend yields are not the only important criteria to be sought in defensive stocks. Defensive investors also look for long records of dividend payments in each high dividend yielding stock. We think the stocks that are able to increase dividends are attractive options for conservative investors that demand consistency and some inflation protection.

We compiled a list of 15 large cap S&P 500 stocks that achieved consistent dividend growth and pay high current dividends. The market data are sourced from Fidelity. All companies in this list increased their dividend payments every year since 2006. These stocks have market capitalizations above $20 billion and annualized dividend yield of at least 3%

Dividend Yield

5 Year Average Div. Growth

YTD Return

AT & T

T

5.92%

5.28%

3.91%

Southern Company

SO

4.63%

4.05%

11.47%

Intel Corp.

INTC

4.25%

16.00%

-0.93%

Kimberly-Clark Corp.

KMB

4.13%

7.39%

10.91%

Lockheed Martin Corp.

LMT

4.10%

20.11%

7.99%

Dominion Resources Inc.

D

4.07%

7.38%

18.29%

ConocoPhilips

COP

4.03%

12.89%

2.23%

NextEra Energy Inc.

NEE

3.97%

7.96%

11.55%

Abbott Laboratories

ABT

3.83%

10.23%

9.89%

Johnson & Johnson

JNJ

3.46%

8.73%

9.35%

Travelers Company

TRV

3.40%

9.54%

-7.73%

Procter & Gamble

PG

3.36%

11.11%

0.43%

General Mills Inc.

GIS

3.33%

11.75%

8.03%

PepsiCo

PEP

3.21%

11.41%

-0.31%

Chevron Corp.

CVX

3.16%

8.45%

10.74%

AVERAGE

10.15%

6.39%

Since 2006, these 15 large-cap S&P 500 stocks have increased their cash dividends every year and their five year average dividend growth is 10.15% on average. Since the beginning of this year, the average return of these 15 stocks was 6.39% vs. -2.59% for the SPY. Only three stocks – INTC, TRV and PEP – in this group had a loss in 2011, whereas five stocks – SO, KMB, D, NEE and CVX – provided double digit returns in the same period.

Here are the top 10, highest dividend-yielding, large-cap S&P 500 stocks on our list:

1. AT&T: T is a leading telephone and television services provider. T has a high dividend yield of 5.92% and returned 3.91% since the beginning of this year. In the past 5 years, T increased its dividend payments annually by 5.28%. The stock has a market cap of $172.09B and P/E ratio of 8.89. Phil Gross holds more than $300M of T. Jim Simons, Cliff Asness, George Soros and D.E. Shaw are also among T investors (see billionaire Jim Simons’ top stock picks).

2. Southern Company: SO is a U.S. electricity utilities company. SO has a 4.63% dividend yield and gained 11.47% since the beginning of this year. In the past 5 years, SO increased its dividend payments annually by 4.05%. The stock has a market cap of $35.25B and P/E ratio of 17.56. Phil Gross’ Adage Capital is the most prominent SO investor.

3. Intel Corp.: INTC is a global technology company that manufactures microprocessor products. INTC has a 4.25% dividend yield but lost -0.93% since the beginning of this year. In the past 5 years, INTC raised its dividend payments annually by 16%. The stock has a market cap of $103.81B and P/E ratio of 9.18. Paul Ruddock’s Lansdowne, Fisher Asset Management and First Eagle hold large INTC positions in their portfolios.

4. Kimberly-Clark Corp.: KMB is a U.S. corporation that produces paper-based personal care products. KMB has a 4.13% dividend yield and gained 10.91% since the beginning of this year. In the past 5 years, KMB raised its dividend payments annually by 7.39%. The stock has a market cap of $26.58B and P/E ratio of 16.2. Ric Dillon’s Diamond Hill had the largest position in KMB among the 300+ funds we are tracking.

5. Lockheed Martin Corp.: LMT is an American corporation operating in aerospace, defense, security and advanced technology industries worldwide. LMT has a 4.10% dividend yield and returned 7.99% since the beginning of this year. In the past 5 years, LMT raised its dividend payments annually by 20.11%. The stock has a market cap of $24.58B and P/E ratio of 9.71. Both Jean-Marie Eveillard's First Eagle and John Shapiro's Chieftain Capital had more than $200 Million in LMT at the end of June 2011.

6. Dominion Resources Inc.: D is a US utilities company supplying electricity and natural gas to North Carolina and Virginia. D has a 4.07% dividend yield and returned 18.29% since the beginning of this year. In the past 5 years, D increased its dividend payments annually by 7.38%. The stock has a market cap of $27.90B and P/E ratio of 16.89. Phill Gross is the most prominent D investor.

7. ConocoPhilips: COP is an energy company delivering various energy products worldwide. COP has a 4.03% dividend yield and returned 2.23% since the beginning of this year. In the past 5 years, COP increased its dividend payments annually by 12.89%. The stock has a market cap of $93.06B and P/E ratio of 8.54. Warren Buffett had a massive $2.7 billion worth holding in COP (see Warren Buffett’s other massive holdings here).

8. NextEra Energy Inc.: NEE is an energy company generating and distributing renewable energy in the United States and Canada. NEE has a 3.97% dividend yield and returned 11.55% since the beginning of this year. In the past 5 years, NEE increased its dividend payments annually by 7.96%. The stock has a market cap of $23.38B and P/E ratio of 12.82. Phill Gross holds the largest NEE position among the 300+ funds we are tracking.

9. Abbott Laboratories: ABT is a leading healthcare company operating worldwide. ABT has a 3.83% dividend yield and returned 9.89% since the beginning of this year. In the past 5 years, ABT increased its dividend payments annually by 10.23%. The stock has a market cap of $78.06B and P/E ratio of 15.66. Fisher holds nearly $500 million of ABT (check out Ken Fisher’s top stock picks).

10. Johnson & Johnson: JNJ is a global company that provides consumer healthcare and pharmaceutical products. JNJ has a 3.46% dividend yield and returned 9.35% since the beginning of this year. In the past 5 years, JNJ increased its dividend payments annually by 8.73%. The stock has a market cap of $180.48B and P/E ratio of 15.76. Warren Buffett is the most prominent JNJ investor with a $2.8 billion worth position. Value investor Bill Miller was also among the fund managers who are bullish about JNJ (see Bill Miller’s favorite stock picks).

Disclosure: I am long T, COP.

Source: 15 Large Caps With Consistent Dividend Growth