Based on a reader's question on our Twitter feed, we recently held a roundtable on the best dividend stocks for beginners.
It was well received, so today it's time to take it up a notch -- let's remove the "beginner" requirement with this question:
At today's prices, name your favorite stock with a chunky dividend yield (3% or greater).
Here are some of our top analysts' answers:
Matt Koppenheffer, Fool contributor
This is a really tough call because there are a lot of high-quality dividend payers that look really enticing right now. Rather than go for an easy mark like Johnson & Johnson or Intel -- both of which I own -- I'm going to give a big dividend thumbs up to another stock I own, France's Total (NYSE: TOT ) .
With other big boys like ExxonMobil and Chevron often dominating U.S.-investor stock talk, Total seems to be the forgotten global supermajor. But whether we're talking financial might, efficient operations, or shareholder returns, Total deserves to be in every conversation about the oil and gas big boys.
Right now Total is changing hands at less than seven times expected 2010 earnings and it's yielding a mouth-watering 6.8%. And though there's a lot of concern over what the U.S. oil and gas backlash is going to be, Total has very little exposure to North America as a whole.
Rick Munarriz, Fool contributor and Rule Breakers analyst
I'm not a fan of the banking giants, but I think there's money to be made in the smaller Hudson City Bancorp (Nasdaq: HCBK ) . The old-school New Jersey banker didn't belly up to the TARP bar, and it continues to grow by providing the banking services that we thought the big boys were doing.
Hudson City's 4.8% yield is chunky. It's also attractively priced, given Wall Street's expectations of $1.15 a share in earnings this year and $1.27 a share in profitability next year.
Tim Beyers, Fool contributor and Rule Breakers analyst
When I'm not buying high-growth tech stocks, I'm buying dividend stocks. When I get to combine both strategies, I get giddy. That's what I'm doing with Taiwan Semiconductor Manufacturing (NYSE: TSM ) , which I've owned since 2006 and whose dividend yield has remained above 3% throughout.
History should matter to you as a dividend investor. The best of the best dividend stocks -- Mergent's list of well-heeled "Dividend Achievers," for example -- have spent decades raising their payouts. Through the end of 2009, Taiwan Semi's dividend payments per share had increased by an average of 8.7% annually over the past five years, Capital IQ reports.
Growth also matters, of course, and Taiwan Semi has plenty to offer. Thanks to a worldwide shift toward more powerful and more portable digital devices, its customers -- chip designers such as Texas Instruments and NVIDIA -- are increasingly in need of its contract chip-manufacturing services. As a result, analysts expect per-share earnings to improve 15% a year for the foreseeable future.
Two parts growth, one part income. That's a dish your dividend portfolio will love.
Alex Dumortier, CFA, Fool contributor
In seeking out the best dividend play, I'm going to rely on three of the four criteria I applied to my search for the best dividend stock for a beginner:
- Dividend yield at least one percentage point higher than that of the S&P 500.
- Operating in a defensive industry: I like stable, defensive businesses in the best times, but I find them particularly attractive in a recovery that may not be self-sustaining.
- Reasonably valued: Overpaying for shares is an excellent way to fritter away your money – regardless of how high the dividend yield is.
I looked at a number of candidates that meet these criteria, including pharmaceutical company Eli Lilly (NYSE: LLY ) (dividend yield: 6.1%) and utility Public Service Enterprise Group (NYSE: PEG ) (dividend yield: 4.5%). In the end, however, I felt that none could match the combination of safety of dividend and growth prospects that I found in the stock I pointed beginner investors toward: Procter & Gamble (NYSE: PG ) .
Between a dividend yield of 3.2% and estimated earnings-per-share growth of 8.6%, P&G investors can reasonably expect an annualized total return of 11%-12% over the next three to five years. In a world in which the yield on the 10-year Treasury bond is equal to Procter's dividend yield, I believe the incremental growth is more than adequate compensation for bearing equity risk on one of the world's finest companies.
Morgan Housel, Fool contributor
I think the perpetually fascinating dividend play is Annaly Capital (NYSE: NLY ) . The current yield is over 15%, and that's about where it's been for the better part of the past two years.
Annaly buys mortgage bonds, leverages up, and milks the income spread, so it's no wonder its business model scares people silly. But the real difference between Annaly and Wall Street blowups is that Annaly sticks with government-backed mortgage securities, so there's virtually no credit risk.
Where there is risk, however, is in interest rates and funding issues. If interest rates start swinging wildly in either direction, Annaly could get squashed. And if capital markets froze up again, funding its balance sheet could get a little itchy.
But given management's track record on interest rate hedges and the incredibly nice 15% yield, the risk-reward trade-off seems pretty lucrative.
Those are the dividends we find tasty. Now share your ideas in the comments section below. Or go read our roundtable on stocks to avoid entirely.
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