When building a strong portfolio, it is necessary to combine various investment types in order to enjoy the best results and insulate it from downturns in the market. Dividend stocks are an important for a diversified portfolio. Although they are often slower movers in share price, they make up for it by providing income. Offering an attractive blend of share price increase and dividends, five buy-and-hold dividend income stocks to consider are Philip Morris International (NYSE:PM), ExxonMobil (NYSE:XOM), McDonald's (NYSE:MCD), Merck & Company (NYSE:MRK) and Annaly Capital Management (NYSE:NLY)
Philip Morris International
A spin-off from Altria Group, Philip Morris is one of the best-known tobacco companies in the United States. In spite of the increasing of governmental controls on the industry, PM is one that has performed well. With a steady climb over the past year and strong business metrics, Philip Morris is viewed as a very good buy among analysts. Trading at nearly $74.00 per share, PM has a one-year target of $78.15 after paying a $3.08 dividend with a 4.10% yield.
The company continues to post very good numbers, as evidenced by its forward P/E of 14.22 and its PEG ratio of 1.25. Boasting a hefty 178.87% return on equity and a quarterly earnings growth of 30.50%, this is a very solid stock to hold. With more than $9.50 billion in levered free cash flow and manageable 54% payout ration, Philip Morris is a very good long-term holding.
Texas-based Exxon Mobil is another stock that offers both price increases and dividends to its share holders. Featuring a market cap of $417.15 billion and 26.85% return on equity, the company's share price is $87, and it has been trading above both its 50-day and 200-day moving averages since surpassing them in November. The company paid a $1.88 dividend, good for a 2.20% yield.
The outlook for 2012 is just as promising as last year, despite some attenuating risks in Iraq. The stock has a one-year estimate target of $92.58, a levered free cash flow of $21 billion and low payout ratio of 22%, suggesting that investors can expect the dividends to keep coming well into the future. With available money, continued demand for oil and a year-to-year quarterly earnings growth of 40.50%, Exxon looks to be a wonderful buy-and-hold stock.
While fast-food lovers think of Big Mac and Chicken McNuggets when they think of McDonald's, investors think about the S&P list of Dividend Aristocrats. For 25 years, one of the largest restaurant chains in the world has been increasing its dividends, enough to earn it a reputation as an aristocrat and a great stock to hold. Capitalized at $103.61 billion, the company sports a handsome return on equity of 39.80% and a levered free cash flow of $3.6 billion.
This solid cash flow allows the company to maintain its $2.80 dividend (for a yield of 2.80%) and a reasonable 48% payout ratio. In addition to its dividend, McDonald's current share price of $101.20 is sitting just below the high point on its 52-week range of $72.89 to $101.87. It is poised to break through that upper limit, with a one-year target of $104.33. McDonald's announced an extension of its Olympic sponsorship, adding to its shrewd marketing and helping to maintain its status as a stock to buy and hold long-term.
Merck & Company
Pharmaceutical giant Merck & Company is a bit of a surprise in an industry often recognized as much for its big swings in share price as its dividend-paying potential. That said, this $119.66 billion market cap company offers nice share price increases to go along with its satisfying dividends, which currently stands at $1.96 on a 4.90% yield.
Merck is currently hitting its 52-week high, ($29.47 to $39.43) sitting at $39.26 after briefly touching $39.43. Although the company has a levered free cash flow of $11.83 billion, its payout rate is a staggering 110%. With year-to-year quarterly earnings growth of 394.70%, the company is generating enough money that dividends likely will not suffer. Although Merck's dropping forward P/E (10.25 compared with its trailing P/E of 28.70) does suggest the company's momentum is slowing, most analysts are still favorable about the company long-term.
Annaly Capital Management
One of the true heavyweights of the dividend stocks, Annaly Capital Management Inc was founded in 1996 and is a real estate investment trust. The $15.96 billion company specializes in the ownership, management and financing of a portfolio of investment securities. NLY stock, currently trading at $16.25 per share, has a reputation for paying large dividends. The company recently announced a $2.28 dividend per share for an impressive yield of 13.90%.
Although the recent announcement represented a dividend cut, many analysts believe the reduction was good for Annaly Capital shareholders. The company's payout ratio has soared to 124% and the cut dropped the dividend from its previous totals of $2.44 per share and a 15% yield. Although the housing crisis has added stress to the company's performance, the stock is still solid, as NLY holds an "outperform" rating from RBC Capital.
Investing in Stability
Dividend stocks are great assets for adding stability to a portfolio. Whether it is a dividend aristocrat like McDonald's or a double-digit yielder like Annaly Capital Management, these holdings provide the steady gains that investors need. These two companies, joined by Philip Morris International, ExxonMobil and Merck & Company, are 5 buy-and-hold stocks that any investors should consider owning
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.