7 Stocks with a 'Golden Ratio' of Dividends

by: Investment U

There has been a lot of talk about value traps recently. With dozens of companies slashing or halting their dividends, many income investors have seen a “double whammy” of lower portfolio values and lower revenues.

And while it’s real easy to find losers, the dividend winners are much harder to find.

Seven that Money Magazine looked at include 3M (NYSE: MMM), Johnson & Johnson (NYSE: JNJ), PepsiCo (NYSE: PEP), Emerson Electric (NYSE: EMR), Nucor (NYSE: NUE), Dover (NYSE: DOV) and Clorox (NYSE: CLX).

These dividend stocks all have something interesting in common - in addition to the fact they’ve each raised dividends for at least 25 years. It’s their yield.

The yields on these companies range from 3.1% to 3.8%. Consider it the “golden ratio” of dividends. In layman terms, it’s the amount a company can comfortably pay out while still keeping enough for reinvestment and growth.

Looking at the growth rate of their stocks, the worst performer, 3M, has only returned a 447.1% return over the last 25 years. Its annualized return of 17.88% still beats the S&P’s (.INX) 16.36%. The best performer from that group, Nucor, has an annualized return of 100.25%.

It should give investors pause about investing only in the highest yielding stocks.