If You Have to Bet on a Stock ... Bet on This One

You're skittish. Who can blame you? You weren't born yesterday. You lived through 2008, watching well-regarded stocks such as Starbucks (Nasdaq: SBUX  ) and Corning (NYSE: GLW  ) plunge more than 50%. So here you are now, wanting to invest in stocks, but fearing you don't have the stomach for it. Have no fear! There are stocks with growth opportunities that'll still let you sleep at night.

I dug up one promising candidate that sports a dividend of about 3.2%, and has a five-year dividend growth rate of 23%. Consulting the company's data pages in our CAPS community of investors gave me even more useful information:

  • Revenue per employee: $195,000. Net income per employee: $30,000.
  • Recent and five-year average return on investment: around 23%.
  • Five-year average net profit margin: 15%.
  • Long-term debt-to-equity ratio: 0.01.
  • Recent P/E ratio: 16. Five-year P/E range: 12 to 25.

Impressive stuff, no? The candidate in question is cranking out a lot of money per worker. It's generating solid returns for shareholders. On average, it tends to keep $0.15 of every dollar it takes in, a steep profit margin. (The recent margin is lower, but the past year or two have been challenging for most businesses.) It has negligible debt. Its P/E ratio isn't sky-high; actually, it's closer to the low end of its recent historic range.

What can this good-as-gold company possibly be? Meet Automatic Data Processing (NYSE: ADP  ) , which specializes in providing payroll processing and other outsourced services to gobs of other companies. Worried that it might not be as steady and dependable as it seems? Consider this: Even in this challenging economy, the company recently raised its dividend for the 35th year in a row!

Meet the Achievers
ADP's not alone, either. To find other companies that have raised their dividends for many years in a row, simply check out the "Dividend Achievers" list. Created by Mergent and now overseen by Indxis, it's a group of companies that have increased their dividends annually over the past 10 years, and which meet certain liquidity requirements. Here are a just a few of them:

Company

CAPS Rating (out of 5)

Recent Yield

5-Year Dividend Growth Rate

Caterpillar (NYSE: CAT  )

****

2.9%

17%

Emerson Electric

*****

3.1%

11%

Johnson & Johnson (NYSE: JNJ  )

*****

3.0%

12%

Target (NYSE: TGT  )

***

1.4%

13%

Chevron (NYSE: CVX  )

****

3.5%

12%

Data: Motley Fool CAPS and Indxis.

You could also look up Dividend Aristocrats, which have raised their dividends annually for at least 25 years -- but that's a much smaller list, and not every company on it will necessarily be a bargain. The Achievers list gives you more companies to look at, which can be helpful if you're looking at other measures than dividends.

Why dividends matter
You'll serve yourself well as an investor if you always remember that dividends can really pack a punch for your portfolio. According to an Ibbotson study, reinvested dividends made up a whopping 40% of total stock returns from 1926 to 2006. Why leave that on the table?

Powerful dividend growers like these can help plump up your portfolio. (They're great for your IRA, too!) We'd love to introduce you to more of them via a free trial to our Income Investor service. On average, its picks are beating the market handily, and they boast an average dividend yield of more than 5%. Click here to read all about those stocks, free for the next 30 days.

Longtime Fool contributor Selena Maranjian owns shares of Johnson & Johnson, Corning, Emerson Electric, and Starbucks. Starbucks is a Motley Fool Stock Advisor recommendation. Automatic Data Processing and Johnson & Johnson are Motley Fool Income Investor recommendations. The Motley Fool is Fools writing for Fools.


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