While there are many individual investors looking for substantial amounts of passive income through dividends or DRIPs (Dividend Reinvestment Plans), many of the most popular dividend stocks get driven up too high when everyone is interested at the same time.
This is good for yield-seekers who are willing to step out of their comfort zone into smaller and/or lesser-known names. Often you can find a combination of value and a higher yield, which offer substantially better returns in many cases.
Here are 4 common dividend stocks (many of which I've recommended myself in other articles) and 4 alternatives.
1.) Exxon-Mobil (XOM)
XOM is the largest integrated energy company in the world, and considered one of the safest plays on the energy industry due to its diversification. The stock is considered slightly undervalued, and based on its PEG ratio of 1.05 it's estimated to grow earnings by approximately 10% for the next few years. These are realistic expectations assuming no catastrophes in the petroleum market. The dividend yields 2.7%, and is very likely to grow for many years into the future.
There are a very large number of smaller energy companies, but for the sake of sanity we will just choose one that has very bright prospects - Statoil (STO). The most noticeable problem that arises is the fact that Statoil pays its dividends in Norwegian krones (it is based in Stavanger, Norway).
In addition, the company pays its dividends annually which some investors don't like due to slightly lower compounding in a DRIP. Still, based on 2010's dividend of 6.25 krones, you get a ~4.4% yield. That is with a very strong dollar. If we had the exchange rate from last summer, the dividend would be closer to 4.9%. So, ultimately, the USD/NOK exchange rate does affect this particular dividend play.
2.) Aflac (AFL)
The insurance giant Aflac has seen some weak trading in the last year, although bullish interest seems to be accumulating. Aflac isn't an exceedingly popular dividend play, although there are undoubtedly many shareholders in the stock for the ~3% yield. It is growing dividends persistently, and has the revenue growth to support this trend. This, among other things, has garnered analyst attention. Standard & Poor's, for instance, has a five-star "strong buy" rating on the stock.
If you want to stay away from the big names, regionally-based insurance companies are your best bet. Mercury General (MCY) is an insurance company that carries a diversity of primarily auto insurance policies (in terms of risk) which are concentrated in the state of California. The company also offers mechanical breakdown and homeowner's insurance, and sells in 12 other states.
Mercury's dividends have been outstanding, and have been growing steadily since 2009. The yield is a massive 5.71%, on a 69% payout ratio. I expect that investors will see a continuation of the trend, which should slowly bolster the price of MCY shares (which have actually been boring to watch).
3.) Procter & Gamble (PG)
PG shares have had dividend increases for 55 consecutive years. That is nothing short of impressive, and gives a lot of hope to those chasing yield. The company sells household products (under well-known brand names like Tide, Pampers, Swiffer, etc.) in over 180 countries. The stock currently has a yield of 3.6%, which is set to grow in the long run (unless offset by appreciation of the shares). Procter & Gamble sets the standard for a blue-chip dividend growth stock.
If you're willing to leave the safety of PG, you might want to look at Avon Products (AVP), which sells an assortment of consumer products that cater to women. Procter & Gamble derives about one third of its revenue from beauty and grooming products, so Avon's focus is more specific, but they share a similar consumer market and have similar exposure to the broader economy. Although Avon's revenue growth has been somewhere between sluggish and nonexistent, the dividend payments have been growing. This means that the 5.9% yield could either get larger, or the stock can appreciate.
4.) Intel (INTC)
Intel has been a hugely successful stock in the last few years, despite its general lack of presence in the tablet and smartphone industry. Many expect that to change in coming years, but Intel has shown the capacity to grow earnings faster than anyone could have imagined just from computers and database services. The stock has had very strong dividend growth, and yields 3.1% despite the huge gains the stock has enjoyed.
Intel isn't the only major player in the semiconductor industry, and has gotten a little too much attention from dividend investors at this point. Microchip Technology (MCHP) is a leader in the microcontroller market, which spans across many industries. It should generally follow Intel into boom and busts (semiconductors are a very cyclical industry), while providing a very attractive dividend on the side. MCHP now yields about 4.2%, which is set to grow based on the history of the stock.