Seeking Stocks With Cheap, Safe Dividend Streams

I currently hold shares in the large U.S. institution Bank of America (BAC). When I bought BAC, my rationale was that as long as the company does not cut its dividend I would be a happy camper holding the shares: BAC was yielding around 6% and has a legendary history of swiftly growing their dividend ever year.

While the share price drifts with the ups and downs of investor sentiment, I am still paid 6% of my investment annually; on time every quarter. 6% is certainly nothing to sneeze at, but this dividend does come with some risk, as we all know the U.S. financial system is in peril currently.

So with the markets in free fall, and dividend yields increasing everywhere you look, as a dividend growth investor it really begs the question...Where can I find the cheapest, safest dividend stream out there in the equity market? In simple terms, how can I take advantage of market weakness by purchasing vehicles that have the utmost certainty of paying me high, and preferably ever-increasing dividends for the long term?

Obviously, finding these companies is not an easy task. One must analyze much about the company including cash flow, debt levels, future outlook, competitive position, and potential threats. It is difficult to determine whether a dividend is at risk or not, or might be at risk in the near future. So which companies might fit the bill? Which stocks offer the highest, safest yields, exluding trusts, REITS, and LPs? I'm asking you!

The higher the yield, the cheaper the dividend stream Perhaps these firms might be worth a look, these are three of my candidates for 'cheapest, safest dividend stream'

Pfizer (PFE) - U.S. pharma. company yields 5.4% and has always been a swift dividend raiser, including very recently. Although the company has little growth, they have a great balance sheet.

U.S. Bancorp (USB) - U.S. banks are obviously in a bad spot right now but USB just recently raised their dividend by 6% to now yield 6.1%. Warren Buffet also likes USB.

Rothmans (ROC) - This Canadian tobacco company yields 5.6%, and I hear their product is quite addictive. They also just raised their dividend by 16%.

Who are your candidates?

Comments

[Long-ShortGuy]

I'm amazed at how many people make the "dividend error": dividends are no different than stock buybacks (they're actually slightly worse after-tax), and both are funded from profits. So a stable dividend is irrelevant if a company's earnings or projected earnings are in free fall.

BAC? Not exactly a pretty stock in a pretty sector. Guess what Countrywide's dividend will be next year.

[Long-ShortGuy]

One other point to confirm this: note that banks are large cap pharma are sector where projected earnings are in freefall. That's why the dividend yield looks good.

It's an illusion. Be careful.

[User 124892]

Citi Bank said the US Bank Corp. USB is a failure and they don't recommend that you buy them?

[Tom S.]

I'm also a "growing dividend" investor. I look at total future growth prospects, which I define as the long-term average dividend yield of a stock, plus it's expected future earnings growth rate. My goal is to find companies that will deliver at least a 13% annual return based on this calculation. You can expect a company to increase their dividend by their annual earnings growth rate over time. I try to get in when the price-to-earnings growth ratio is reasonable, and then dollar-cost invest by sending the same amount monthly to their dividend reinvestment plan, regardless of what the market is doing. I also look for companies that are not tied to one country's economy. One stock that I would currently recommend, based on my criteria, is AFLAC.

[SmartGuyStocks.com]

PFE is one of the worst investments of all time. The stock hasn't made a penny since 1998 (if you bought and held for the dividend). You would have been safer and happier in a money market.

You look young enough, why are you looking for yield? This is the time of your life to invest in the best and fastest growing companies of our generation. Those others will not make you rich ...

[shur1l]

Given the choice between dividends or stock buybacks, I'd choose the latter anytime. Among the banks, I actually prefer WFC. It pays out less dividend than BAC or USB, but thats because its payout ratio is lower. It spends a lot more on stock buybacks and its extremely well managed. And regarding Warren Buffett, well, he clearly has a far bigger preference for WFC according to his portfolio holdings and this years investment purchases: www.dataroma.com/m/sto...

[helplessobserver]

One of the longest continuous dividend streams is held by BB&T Corp. I think it goes back to 1914. It was recently raised from .42 to .46 per share. The bank holds no sub-prime paper and banks in the growing southeastern US. Earnings estimated at .80 per share are to be reported on Jan. 17. The trouble here is the yield is about 7% and the stock has declined from 44 to about 27. One has to wonder if the market knows more than the public about the prospects of BB&T going foreward. On my orginal investment the dividend yields 18%.

[blah-blah]

Well said

Ignore the naysayers.

BAC and others listed here are excellent companies with a long history of raising dividends. It's great to embrace the declines and continue to buy more of your favorite dividend payers at cheaper prices instead of worrying about the market all the time.

[weiwentg]

"Citi Bank said the US Bank Corp. USB is a failure and they don't recommend that you buy them?"

that's a bit like the pot calling the kettle black, isn't it? if anyone's dividends are in danger, it's Citi's. USB, on the other hand, is a conservative bank, and I have every expectation that they will be growing their dividends even in this market.

"On my orginal investment the dividend yields 18%."

I'm a young investor. companies that consistently grow dividends have a place in anyone's portfolio. when you reinvest the dividends, your future stream of dividends grows even further. your yield on cost rises. besides, companies that pay dividends and grow them constantly are probably growing themselves. USB, I admit, probably isn't growing that fast. however, Bank of America and Pfizer will grow. Pfizer's had a hard last few years, but their pipeline is strong.

[weiwentg]

PS, Rothmans trades on the Toronto stock exchange; the ticker ROC in the US is for Rockwood Holdings, which I think does specialty chemicals. I don't see a US ADR for the former.

for faster growing companies that pay decent dividends, I like:

Compass Minerals (CMP), which produces salt and sulphate of potash. They are the lowest cost US producer of the former, which gives them an advantage over everyone else, and we will always need salt. They also are a major producer of the latter, which is a specialty fertilizer for plants that may be damaged by potassium chloride. They've managed to consistently hike prices on the latter.

Enterprise General Partners (EPE), which is kind of a MLP closed end fund. it controls the general partner interest in Teppco, and has a stake in Energy Transfer Equity. both are good gas MLPs.

Realty Income (O) pays dividends monthly, and buys and leases retail properties. it's a more slow and steady pick, but it yields nearly 7% today and has been paying a rising dividend for nearly 40 years.

Johnson and Johnson (JNJ) doesn't have as hefty a payout as Pfizer, but this company has had double digit sales growth most of the time for decades. they're diversified between medical devices, pharma, and consumer medical goods, and can be expected to weather most economic downturns. I also expect their dividends to grow nicely.

[moneygardener]

Dividend growth investing is a very powerful concept that benefits those with a long time horizon even more so than it benefits those with a short time horizon. I'm not investing in high yielders that I don't think will grow earnings and dividends swiftly over time.

Check out my holdings on my blog at themoneygardener.

[ritr54]

What about dry bulk shippers?Yields are north of 8%?

[granger]

GPC, RPM, ITW a few of my favorites, I also own SYY

[kurt walter]

Dividends are much better than stock buybacks. I don't trust most managements. I want dividends. Most companies buy back stock when it is too high. Managements screw everything up. I see the dividend as an ongoing return on my investment. I see stock buybacks a HOPE that it will reduce the stock float and make the stock price go higher. I don't count on HOPE. I want the dividend. Period.

[User 134139]

Just curious. Why would you exclude REITs, trusts, CEFs and ETFs ? There are some good dividend plays here as well as lucrative derivative positions to be had. You just need to watch your "basket" closely.

[moneygardener]

I just wanted some participation from readers of my blog (the moneygardener) on this post. I don't mean to exlude REITS, trusts, LPs etc. I just was interested in equities on this post.

I am actually Canadian, and in Canada one benefit of dividend paying stocks vs. these other vehicles is that dividends are taxed more favourably.

themoneygardener.blogs.../

[Delaroche]

Dividend is a great way to make money. ten years ago, i brought Phillip Morris at $18 a share. the dividend then was $2 a share so I was earning roughly 11% dividend. Today, Phillip Morris pays $3 a share and the stock price is almost $80 a share. my dividend base on original share price is now about 17%...not bad investment.

[teddy s.]

It's amazing and tempting to look at the yields on major bank stocks (www.money-rates.com/ba...) but when will the banks turn around?? How much risk is there?

[teddy s.]

Yes the yields on major bank stocks listed at money-rates.com tempts me to buy...at some point WM,JPM,NCC will recover

[Brennus]

"Given the choice between dividends or stock buybacks, I'd choose the latter anytime. Among the banks, I actually prefer WFC."

The problem is, WFC share count has increased by over 26MM over the past year. That's almost a percent increase in the share count. So those share buybacks have been going into the pockets of somebody else.

So much for the advantage of a stock buyback. The company is probably buying back the options granted to executives.

I've never had anybody take my dividend away from me.

Does anybody ever actually check this stuff?