4 Stocks That Are Leading the Rebound in Dividends

Post-recession earnings growth is lifting spirits in executive offices and boardrooms -- and it's going to weigh shareholders' pockets down a little bit more. According to analysis by Bloomberg, not one stock in the S&P 500 is expected to lower its dividend this quarter -- a first since 2004. Even former growth darling Starbucks (Nasdaq: SBUX  ) has found religion, initiating a $0.10 quarterly dividend (albeit with a modest yield of 1.5%). Aggregate S&P 500 dividends have increased by $8.4 billion year-to-date, whereas 2008 and 2009 produced a cumulative decline of $58.8 billion. So how do investors participate in this trend?

Four dividend workhorses
Four stocks made an outsize contribution to the increase in total dividend dollars: With their April dividend raises, IBM (NYSE: IBM  ) , Johnson & Johnson (NYSE: JNJ  ) , Procter & Gamble (NYSE: PG  ) , and ExxonMobil (NYSE: XOM  ) added $1.9 billion to S&P 500 dividends -- they currently account for better than one-tenth of the total for the index:

Company

Dividend Increase

Dividend Yield

IBM (NYSE: IBM  )

18.2%

2%

Johnson & Johnson (NYSE: JNJ  )

10.2%

3.4%

Procter & Gamble (NYSE: PG  )

9.5%

3.1%

ExxonMobil (NYSE: XOM  )

4.8%

2.6%

Source: Standard & Poor's.

With the exception of ExxonMobil, the percentage increase in the dividend amount is well ahead of what investors should expect in terms of annualized price appreciation on the S&P 500 over the next five to seven years. The dividends on these stocks are about as secure as they come, and the stocks' valuations on 2011 expected earnings-per-share all look reasonable -- investors could do a lot worse than to own these dividend stalwarts.

Amounts are higher, but the dividend yield remains low
Despite the positive news, not all dividend-related data is encouraging: At 1.81%, the dividend yield on the S&P 500 is barely above the five-year low it achieved on April 28th (1.75%). That's consistent with an observation I have been repeating for some time now: The extraordinary stock market rally that began in March 2009 has lifted stocks into "overvalued" territory. All the more reason to stick with well-priced, defensive names and sectors: The top three sectors by dividend yield remain telecommunication services (6% on April 28), utilities (4.4%) and consumer staples (3%).

Interested in more high quality dividend stock ideas? Tim Hanson identifies six stocks that the Motley Fool's top dividend-focused analysts are watching.

Fool contributor Alex Dumortier has no beneficial interest in any of the stocks mentioned in this article. Starbucks is a Motley Fool Stock Advisor recommendation. Johnson & Johnson and Procter & Gamble are Motley Fool Income Investor picks. Motley Fool Options has recommended a buy calls position on Johnson & Johnson. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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