3 Dividend Stocks for the Rest of 2012

As the half-way point for 2012 draws near, I want to introduce you to three dividend stocks that you'd be wise to investigate if you like market-beating results.

But before getting to that, I have a confession to make: I have no idea how these stocks will do over the next six months. You see, investing isn't about moves made in six days, six weeks, or even six months. Those short-term moves look a lot more like trading.

Investing is about how your money will do over the next six to 60 years. These three dividend payers just happen to be lucky enough to be on sale at a time where they can be labeled as "three dividend stocks for the rest of 2012."

Veolia Environnement (NYSE: VE  )
We'll start with the riskiest of the three stocks on my list. Veolia -- which is based in Europe and focuses on waste and water systems -- was my pick for 2012's top dividend stock. Though if you followed my advice you're up 24% this year, I still think the stock is a deal.

Though the company had to trim its dividend this year, it's still yielding a more-than-respectable 6.1%. The company is currently focusing its services and paying down debt. This is occurring through its exit from the transportation business as well as its garbage collection business in North America. If Veolia can divest these divisions, pay off debt, and focus more intensely on its water and waste systems, there could be huge price appreciation (as well as dividend payments) in the future.

But the company isn't without risks. Though providing water to people and picking up and disposing of their trash is a pretty stable business model, the areas where Veolia provides its businesses aren't quite as stable. Being headquartered in France and providing services to several European nations makes investors queasy about the potential for Veolia to have trouble collecting money if a worst-case scenario develops.

Personally, I don't believe we'll have a worst-case scenario in Europe, and even if we did, waste and water services would be some of the last ones to be cut. Though it's risky, I think Veolia is a long-term buy right now.

Waste Management (NYSE: WM  )
If you'd like a safer bet within the same industry as Veolia, look no further than America's largest garbage collector. Waste Management offers up all the safety of a company that provides a crucial service without the risk of being located in Europe.

Currently yielding a healthy 4.4% dividend yield, Waste Management is 50% bigger than its closest US rival, Republic Services (NYSE: RSG  ) . And yet, Waste Management trades for a lower earnings multiple and offers a higher yield.

Perhaps most important for the ultra-long-term investor, the company is at the cutting edge of sustainability. Currently, Waste Management is the largest recycler in America, and it is able to use methane gas from its landfills to power both its trucking fleet as well as 1 million homes. That type of forward thinking, combined with today's valuation, makes Waste Management a compelling buy.

Paychex (Nasdaq: PAYX  )
Finally, we have Paychex. While rival Automatic Data Processing (Nasdaq: ADP  ) tends to focus on payroll solutions for the country's larger businesses, Paychex is happy to focus on smaller and medium-sized businesses.

Obviously, for any company with such a focus, the employment picture in America is crucially important. There's no doubt that the numbers recently have been pretty dismal. This, however, is where taking the long-term view really pays off. While it's certainly possible that unemployment numbers could remain above 8% for the next five years, that's highly unlikely based on historical precedent.

But because the market tends to only look about six months into the future, most investors aren't focused here -- and that provides an opportunity for us individual investors. When jobs eventually come back -- be it in one year or five years -- many of those jobs will be at small- and medium-sized businesses.

Though the stock trades for a somewhat high 20 times earnings, its price-to-free-cash-flow ratio is a more reasonable 17. Today's yield of 4% is more than enough to make the company a buy at today's prices.

Today, I provided three ideas that I think will produce market-beating results. I've backed that conviction up by making bullish CAPScalls on my All-Star profile as well. But if you'd like three more ideas from our top analysts, I suggest taking a look at their report on three Dow stocks dividend investors need. Inside the report you'll get the names and tickers of all three dividend stalwarts. Get your copy of the report today, absolutely free!

Fool contributor Brian Stoffel owns shares of Veolia Environmental. You can follow him on Twitter, where he goes by TMFStoffel.

The Motley Fool owns shares of Waste Management. Motley Fool newsletter services have recommended buying shares of Automatic Data Processing, Republic Services, Waste Management, Veolia, and Paychex, writing a covered straddle position in Paychex, and writing a covered strangle position in Waste Management. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On June 28, 2012, at 4:18 PM, JohnCLeven wrote:

    Dividends are nice, but WM's revenue, earnings, and cash flows have not grown in the past 5 years. A P/E of 16 is very expensive for a company with no growth, debt/equity of 1.5, and declining ROIC.

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