5 Dividend Monsters to Buy After the Crash

Stocks have tanked lately, but you already know that.

Why they've tanked is important. And while there are many reasons (most random and unexplainable), a big one is fear that European fallout will slow economic growth here in the U.S.

And there's good reason to think it will. With consumer spending hindered by debt, housing construction still in the dumps, and businesses sitting patiently on their cash, forecasts of economic growth have relied on a surge in exports. With the dollar strengthening to multiyear highs, that's now questionable at best.

So if economic growth does stall, what do you do with your money? You could do worse than doubling down on dividends. The idea is that if the capital appreciation side of stocks spins its wheels, dividends can still carry you along with reasonable returns.

The good news is that the recent crash has turned some traditional dividend stocks into veritable cash cows. Here are five:

Stock

Current Yield

CAPS Rating
(out of 5)

AT&T (NYSE: T  )

7%

***

Verizon (NYSE: VZ  )

7%

****

Altria (NYSE: MO  )

7%

****

Southern Company (NYSE: SO  )

5.7%

****

Eli Lilly (NYSE: LLY  )

6.1%

****

Source: Capital IQ, a division of Standard & Poor's.

Let's say a few words about these companies.

AT&T and Verizon both churn out some of the highest dividends you can find today. They're both also looked down upon because everyone knows future earnings growth will be meager at best. The landline business died years ago, the wireless business is mostly saturated, and what growth AT&T derives from the iPhone gets coldcocked by subsidies to Apple (Nasdaq: AAPL  ) .

Then again, no one in their right mind should think a stock yielding 7% deserves to produce much earnings growth. Understand that what you're paying for with these stocks is the dividend and nothing else; come to terms with the fact that dividends may not grow at all in the coming years. But realize the yield is so high that investors who sit around patiently reinvesting their dividends will beat the pants off most other investors as the years tick by. It's a beautiful thing.

Altria's story hasn't changed in decades: Cigarettes are social dynamite, the threat of class action lawsuits hovers overhead, and new taxes threaten the customer base. What also hasn't changed are investors who ignore social loathing and realize the litigation threat is largely overblown being rewarded with piles upon piles of money. It has never paid to bet against Big Tobacco, and there's little reason to assume that will change. A 7% dividend on this stock while 10-year Treasuries yield 3.1% is seriously attractive.

Pretty straightforward with Southern Company: It's a well-run power company serving more than 4 million customers. They turn their lights on, you get a 5.7% dividend -- and that's a dividend that hasn't been cut in the past 23 years. Simple. Stable. Lucrative. If economic growth stalls, utilities like Southern Company will provide some of the best returns around.

Eli Lilly's story is similar to AT&T and Verizon. The company is easy to disregard because earnings growth is a bit of a question mark. Yet shares crank out a 6.1% dividend, and the payout ratio on that dividend is only 51%, so odds of a dividend cut in the near future seem pretty slim. Earnings can languish while the dividend keeps chugging along. Eli Lilly toiled for years developing new drugs: Sit back and enjoy its hard work.

Let's keep this going
What are your favorite dividend stocks at today's prices? Fire away in the comments section below. And for more on dividend investing, be sure to check out:

Fool contributor Morgan Housel owns shares of Altria and Verizon. Apple is a Motley Fool Stock Advisor pick. Southern is an Income Investor choice. The Fool has a disclosure policy.


Read/Post Comments (28) | Recommend This Article (192)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 11, 2010, at 3:43 PM, bunngolf wrote:

    All are on my target list. Have been getting wet on some of them. Also beginning to look interesting are PM, VOD and DD.

    Great job, as usual!

    BG

  • Report this Comment On June 11, 2010, at 5:30 PM, sagitarius84 wrote:

    Hmm, just because a company has a high current yield, does not make it a sound long-term investment. Successful dividend investors purchase stock in companies that could grow earnings, and thus grow distributions over time.

    In the list above, the dividend payout ratio is not scary only for LLY...

  • Report this Comment On June 11, 2010, at 5:37 PM, TzingerToo wrote:

    I like Verizon. Verizon has astutely invested in fiber for the last mile to the business and home. They are ahead of other telecoms doing this. I live in an area that has both Comcast and Verizon. Verizon customers like the FIOS quality.

    I see growth in Verizon because the fiber investment is nearing completion so the debt capitalization is done. I expect revenues to follow. It seems to be a mistake to assume it's a wireline business alone.

  • Report this Comment On June 11, 2010, at 5:58 PM, Royston72 wrote:

    I picked up some more MO after it went down to $20 bucks a share. The yield is too much to pass up. Verizon would be nice too, but my $$ are used up.

  • Report this Comment On June 11, 2010, at 6:07 PM, lutece7 wrote:

    Apple hasn't tanked. its a little down from its high, but certainly has not tanked. Yet all I ever seem to read here by columnists on the Fool is what crime it is that they don't pay dividends. Would you rather have dividends, or a stock that went from 89 a little over a year ago, to the current 253, and has a very rosy looking forecast? Some people looking at 300 and even 350 targets. Apple continues to beat expectations and continues report not only profits, but record profits... all throughout this economic crisis.

  • Report this Comment On June 11, 2010, at 6:10 PM, TMFHousel wrote:

    lutece7,

    I'm not sure you actually read this article, but nowhere did I say Apple tanked or should pay dividends.

  • Report this Comment On June 11, 2010, at 7:20 PM, dippinmytoes wrote:

    I work with Southern Co's management. They are a solid, well run, no nonsense company where ethics matter. I'll be looking into it as an investment choice...

  • Report this Comment On June 11, 2010, at 7:43 PM, cztrain wrote:

    AT&T may not have much growth in land lines, but now that they can compete with cable, U-verse is picking up a lot of TV customers over facilities already installed. That's new business and new income.

  • Report this Comment On June 11, 2010, at 7:49 PM, OPTIONNUT wrote:

    I picked up MO at 7% yield but this is a dog as far

    as stock price gain goes...good place to park cash vs. the money market.

  • Report this Comment On June 11, 2010, at 9:15 PM, TheDumbMoney wrote:

    cztrain, I agree. I talk about U-Verse in my pitch for AT&T. Nobody seems to realize that AT&T is just really starting a major push into TimeWarner/Charter/Comcast territory, it's a whole new area for them, even if it's not likely to bring down the house. I've used Comcast and TimeWarner in the past, and AT&T I think is cheaper and more reliable, with better customer service.

    Regarding MO, people also need to be aware of MO's large stake in SABMiller, which is one of the largest international beer companies, and can provide growth, if and when the economy picks up.

  • Report this Comment On June 11, 2010, at 9:27 PM, xetn wrote:

    "Why they've tanked is important. And while there are many reasons (most random and unexplainable), a big one is fear that European fallout will slow economic growth here in the U.S."

    I believe they have tanked because there is NO recovery. We added 400000+ jobs of which only 40000 were private sector jobs. The rest were mostly census workers hired (multiple times) for part-time work. If there is a recovery, where are the jobs? Jobs are a derivative of production. No need for production, no need for jobs. What drives production? Saving and investment. But the government is taking most of the country's resources, and the Fed is holding interest rates at near zero (and negative after tax), so why would anyone save? Add to this, the constant attack on the market by the current administration and you have a disincentive for producing anything. That is why Steve Wynn is moving to Macau.

    This doesn't even touch on the collapse of the housing market (sales down 49%) after the end of the incentives, the high rate of personal bankruptcies, the huge glut of commercial real estate that is about to end in foreclosures.

  • Report this Comment On June 11, 2010, at 10:19 PM, OklaBoston wrote:

    http://www.gurufocus.com has a chart feature which informs me that Verizon's free cash flow hit a 10 year high last fiscal year and that, off it's most recent quarter, could rack up another one this year. Offhand I would say there's very little risk of the dividend being cut for now. I'm more used to judging stocks off book value growth and insider ownership, so I'm wondering how many other Fools agree with my assessment and how much importance I should attach to it when evaluating high-yield stocks.

  • Report this Comment On June 12, 2010, at 12:39 AM, goalie37 wrote:

    +1 rec for any article pounding the table on dividends. I may not agree with the specific stocks, but you guys are the only ones in the financial media telling this side of the story. Keep it up.

  • Report this Comment On June 12, 2010, at 5:01 PM, busterbuddy wrote:

    This is a good article. But the yields you provided are rounded up. MO could be purchased at a point this week for a yield of 7%. I owe MO, T, SO considering LLY. Now T here is a point to consider. I use Verizon wireless, in my part of the world, ATT wireless phone service is bad. And we just added a roaming area code. Many people who own IPHONES are not happy with T's service. Truth is Verizon's wireless system is better much much much better. Why I don't own the stock says alot, though. YOu decide. My wife who is about as technical smart as a snail wants a Droid. She has no need for a DROID and insist IPHONE is great but the T's service is bad. What does that tell you about a family with a IPAD? and a Wife that still can't figure out how to use WEB browser or type in a password. I'm seeing Verizon at the present price a good good buy. But I"m not pulled the trigger. But did consider it this week.

  • Report this Comment On June 12, 2010, at 5:53 PM, gimponthego wrote:

    I view BMY as having my cake and eating it as well! With two headline making drugs last week and a dividend yield of 5.10% I'll be getting additional shares next week if there's another good dip. Go long!

  • Report this Comment On June 13, 2010, at 3:11 PM, marginjim wrote:

    At the bottom of this recession, the constant refrain, from almost everybody, was that the last thing to recover will be jobs. That's the way it has always been. No reason to expect anything different this time.

    So xetn proclaims that there is no recovery because job growth is still very slow. Duh !

  • Report this Comment On June 13, 2010, at 10:28 PM, TMFHousel wrote:

    "This is a good article. But the yields you provided are rounded up."

    The calculations were inadvertently done during the week's low. There was no rounding done at the time.

    Thanks for reading!

  • Report this Comment On June 18, 2010, at 5:53 PM, Scamspy wrote:

    With interest rate pressures likely to be downward for some years, a steady sound dividend earner seems to be a must in most portfolios, say 5 to 10%. Of course a market correction would make such a decision very wise at 15 to 25%

  • Report this Comment On June 18, 2010, at 6:42 PM, Garyestein wrote:

    Interesting article as a devoted dividend investor here are a list of stocks for your consideration in a format of ticker followed by yield. Some are master limited partnerships which present a difficult reporting problem at tax time,you will need professional help to file your return so consider that before buying them I will list them first.

    CQP 10%, LINE 9.55%, ETP 7.83%, MWE 8.5%, VNR 9.9%

    the following are not MLP's BKCC 11%, MO 6.9%, BMY 5.1%, T 6.6%, NGG 7.5%, EXC 5.3%, HCN 6.13%, JNJ 3.4%, PG 3.2%, LLY 5.8%, PM 5.2%, MXIM 4%, PSEC 14%, TSM 4%. WM 3.59%,

  • Report this Comment On June 18, 2010, at 8:27 PM, Anysimplefool wrote:

    Blackrock and Prospect are in a very different risk league than the other you list. Lumping them in with the likes of JNJ and PG is classic apples vs. oranges. Of course, their relative yields are quite a hint.

    Simple

  • Report this Comment On June 19, 2010, at 3:50 AM, PoundMutt wrote:

    Obama gave a 12.5 minute speech in Columbus, Ohio and HUNDREDS of construction workers were told to stay home for the day, WITHOUT PAY!!!, so that INCOMPETENT could try to make political points. The unemployment rate for construction workers is 23 PERCENT and BHO deprives workers of a days pay! SOME recovery engineer he is!!!

  • Report this Comment On June 19, 2010, at 5:35 PM, philkek wrote:

    Thanks MF for all these foolish comments. Fool got me started investing with your books about high dividends stocks and index funds. This information paid off well for me. I will continue using your profitable long-term strategy. Out of the stocks listed here I've only owned MO. I will do my fundamental homework on other temptations named before I commit real money. Long live the free world that we live in as we invest for profits. Fool on.

  • Report this Comment On July 27, 2010, at 6:32 PM, jerryrun9 wrote:

    All the stocks you mention are favorites of mine; I currently own T & MO. Two other of my favorites are EXC & PAYX. Reinvesting the dividends of strong companies over the long term is the way to go - especially in this uncertain economy.

  • Report this Comment On November 05, 2010, at 8:23 AM, gavinstokes wrote:

    I like this list of div stocks a lot:

    http://www.phoenixmir2.com/STOXX

    I'm usually wary of investing in stocks with very high yields, because those are usually suitable for a steady income.

  • Report this Comment On January 11, 2011, at 10:06 AM, JoeFoster5 wrote:

    STOXX Americas Dividend Select 40 highest dividend yielding stocks:

    http://goo.gl/4KhKe

  • Report this Comment On July 02, 2011, at 1:26 AM, TruffelPig wrote:

    I have ATT and SO from the list. I like Verizon too but preferred the ATT senior notes because the beta is 0.05 and I want it for stability in my portfolio. Not so fond of MO mostly for some ethical reasons. No opinion on LLY but this Pharma is very sensitive to patent issues. Generics obviously less. Too bad PRGO has such a low dividend.

  • Report this Comment On February 18, 2012, at 4:14 PM, Rafinator wrote:

    ya and investing it into a drip is awesome:

    http://www.cashmoneyinvesting.com/article/2012/01/dividend-r...

  • Report this Comment On August 20, 2013, at 11:09 AM, sagitarius84 wrote:

    I have listed below the best dividend stocks for 2013 and beyond:

    http://www.dividendgrowthinvestor.com/2013/01/best-dividend-...

    Of course, in order to be successful, you need to buy at attractive valuations, companies with strong competitive advantages, rising EPS, DPS and high ROE. Holding a diversified portfolio of at least 30 stocks from several sectors is another important thing to put in perspective.

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