11 Incredible Dividend Stocks

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It's not a dividend investor's world these days.

Most investors see dividends as a quaint concept like a bed and breakfast in the countryside, a horse-and-buggy ride through the city, or a pocket full of butterscotch suckers. They know that dividends are there, but they don't really take them seriously as a way to beat the market.

And certainly companies aren't making it easy to be a dividend investor. Using data from Yale's Robert Shiller that goes back to 1900, my fellow Fool Morgan Housel has shown that the current dividend payout ratio -- that is, the amount of its profit that a company pays out as dividends -- is less than half of its long-term average.

But if I can assure you of just one thing, it's this: Overlooking dividends is a big mistake.

The best part of waking up
Forget Folgers; dividend investors know the best part of waking up is knowing that the companies they own are sharing their profits through cash payouts. And that love of the ka-ching of dividend checks is well-placed, because it doesn't matter how you slice it: Dividends give investors a leg up.

  • According to Ned Davis Research, between 1972 and September 2010, dividend-paying stocks in the S&P 500 returned 8.8% per year while their non-dividend-paying counterparts returned a measly 1.4%.
  • Between 1999 and 2010, the median return from all stocks with a market cap above $1 billion was a 3.2% loss. The median return from stocks with a market cap above $1 billion and a dividend yield of 3% or better was a 28% gain. And that's not adjusted for the dividend returns.
  • Writer/investor Robert Arnott has shown that over the 200 years ending in 2002, a whopping 5 percentage points of the 7.9% annualized return from stocks came from dividends.
  • Research from The Journal of Portfolio Management has shown that this works outside the U.S. as well. An investment strategy focusing on the countries with the highest-yielding stocks significantly outperformed stocks in countries with low yields.

And, frankly, I could go on and on. There's plenty of research showing that a pitting a portfolio without dividends against one with dividends is like throwing your 8-year-old in the ring with Wladimir Klitschko -- it doesn't stand a chance.

To the rescue
Fortunately, my fellow Fools don't want to see your portfolio bruised and battered, so they've gotten their hands dirty scouring the entire stock market to find the very best dividend stocks available.

I'll provide you with a brief introduction and then let them give you the down-low on why these stocks need to be on your radar.

The classics
Alex Dumortier and Dan Caplinger are bringing us the skinny on Wal-Mart and PepsiCo (NYSE: PEP  ) . These are both great businesses, immediately recognizable, and with size and strength to help you sleep well at night. Oh yeah, and they both show up on Standard & Poor's Dividend Aristocrats list, which means that they've not only paid but increased their dividends every year for at least 25 years.

The international powerhouse
Looking for some exposure off the U.S. shores? Look no further than Morgan Housel's stock. As the company behind the mighty Marlboro cigarette brand outside the U.S., Philip Morris International (NYSE: PM  ) uses its market-dominating position to deliver serious dividends for its shareholders.

The big pharma juggernauts
If dividends are just what the doctor ordered, then are health care sector dividends even better? With pharma giants Abbott Labs (NYSE: ABT  ) and Johnson & Johnson (NYSE: JNJ  ) , Brian Orelli and Joe Magyer hope to make your portfolio as fit as a fiddle. Take these two dividends and call me in the morning.

Quietly consistent
Being a dividend standout doesn't mean you have to be a stock on the tip of everyone's tongue. Remember the dividend aristocrats list that I mentioned above? Both Bemis and Aflac (NYSE: AFL  ) show up on that list as well. While making packaging products and selling supplemental insurance may not make these the most exciting companies out there, Sean Williams and Jacob Roche think you'd be crazy to overlook them.

The tech up-and-comers
Dividends from tech companies? Don't look so surprised. While growth investors may have fallen out of love with some of the dot-com darlings in recent years, copious cash flow and growing payouts give dividend investors reason to go head over heels. Dave Meier and Eric Bleeker bring us chip champ Intel (Nasdaq: INTC  ) and semiconductor equipment maker KLA-Tencor.

The nontraditionals
The theme of every nerd-turns-cool movie is that being different can be advantageous. Rounding out our list with Autoliv and Brookfield Infrastructure Partners (NYSE: BIP  ) , Jim Gillies and Jim Royal make the case that the same holds true when it comes to dividend stocks.

What are you waiting for?
Now you know that if you want a portfolio that's going to outperform the rest of the market, a great place to start is with companies that pay you back through dividends. But as G.I. Joe sagely advised, "Knowing is half the battle." Now it's time to tackle the other half by digging in with my fellow Fools and the incredible dividend stocks that they've uncovered. Keep checking back and we'll add links to the individual stock stories as they become available.

The Motley Fool owns shares of Philip Morris International, PepsiCo, Aflac, Johnson & Johnson, Wal-Mart, Brookfield Infrastructure Partners, and Abbott Laboratories. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Abbott Labs, Johnson & Johnson, Aflac, Intel, Brookfield Infrastructure Partners, Wal-Mart, PepsiCo, Philip Morris International, and Autoliv, as well as creating diagonal call positions on Intel, Wal-Mart, Johnson & Johnson, and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Abbott Labs, Intel, Johnson & Johnson, and Wal-Mart, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

Read/Post Comments (3) | Recommend This Article (49)

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 06, 2011, at 4:45 PM, mm5525 wrote:

    Mighty PM has been getting crushed as of late, just like everything else, but it sure looks like a bargain here, going from almost $72 to $68.32 at today's close. However, when you look at the weak US data, jobs report, massive debt, forever-low interest rates, and the weakness of the US Dollar with the serious potential for QE3, PM is worth a look. The Euro is back to @ $1.46 even with all their woes, and China and other growth economies are continuing to raise rates. Since PM's revenues come from entirely outside the US among dozens of different currencies and then are converted into US Dollars, PM is a very well-hedged stock with one of the most iconic brands in the world.The USA may not admit we have inflation in several key areas, but other governments are freely admitting it and trying hard to combat it. This will help PM. Plus, PM raises their very nice dividend every September for the October payout and has committed to a 65% dividend payout ratio on their EPS. They just raised the EPS guidance by $0.10 from the last CC and currently is yielding about 3.72% at current levels. Plus, they buy back 5 billion dollars of their own stock every year, up from 4 billion a year since the spinoff from MO in 2008.

  • Report this Comment On June 06, 2011, at 8:05 PM, TheDumbMoney wrote:

    mm525. Be sure you look also at how much PM hedges its foreign currency exposure though. PM is a cigarette company, not a currency arbitrage operation. That said, they do by-and-large benefit from a falling dollar. I haven't really thought it was cheap though since about $60/share, though it has been awhile since i have run my calculations.

  • Report this Comment On June 10, 2011, at 11:35 PM, TimoDOZ wrote:

    The ETF HDV has most of these ideas in it. There are some stocks on this list that do not look so great like AFLAC. Consumer durables and health care very defensive. The ags are going to lead in the next commodities resurgence as nothing has really changed and the Emperor has no clothes. AGGZF up so sharply in an 18 point S&P sell off, HPCCP standing like Jackson and his Virginians like a Stone Wall. VCC and CAG all with great dividend yields

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