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5 Attractive, Stable Dividend Stocks

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The importance of investing in dividend-paying stocks should never be underestimated. Not only do these stocks offer a steady stream of income, they also offer the potential for capital gains.

In fact, countless studies demonstrate that dividend-paying stocks outperform non-payers by a wide margin. From 1972 to 2006, dividend-paying stocks returned an average of 10% annually versus 4% for non-dividend payers, according to Ned Davis Research. Going back to 1926, other studies confirm almost half of the S&P 500′s return was due to the dividends paid by the companies in the index.

That said, it's tough to find reliable dividend investments in the current market, with industry titans like General Electric and Dow Chemical having cut their dividends in recent years.

So how do you find reliable dividend investments? We've come up with a list based on the following screen:

Size: We started the screen with a universe of stocks that have market caps north of $2 billion. Larger companies tend to be more stable, offering relative safety to dividend investors.

Low Payout Ratio: The payout ratio is the proportion of earnings paid out in dividends to shareholders. In general, the lower the ratio, the more secure the dividend -- because smaller dividends are easier to pay out than larger dividends. For our screen, we only focused on companies with payout ratios below 50%.

High Dividend Coverage Ratios: Dividend coverage ratios compare the company's cash holdings to its dividend payments. In general, the higher these ratios, the more stable the dividend. For our screen, we only focused on stocks with cash / dividend ratios above 2.0, and free cash flow / dividends above 1.5.

Conservative and Transparent Accounting Practices: The stocks mentioned below have conservative and transparent accounting practices, based on ratings developed by forensic accounting firm Audit Integrity. The Accounting and Governance Risk (AGR) rating is a forensic measure of the transparency and reliability of a corporation's financial reporting and governance practices. The closer the AGR score is to 100, the more conservative the company's accounting practices.

All of the companies in our list have dividend yields over 3%, and AGR scores above 60.


Dividend Yield

Payout Ratio

Cash / Dividend

FCF / Dividend

AGR Score

American Eagle Outfitters (NYSE: AEO  )






ConAgra Foods (NYSE: CAG  )






National Semiconductor (NYSE: NSM  )






Bank of Hawaii (NYSE: BOH  )












Interactive Chart: Press Play to compare annual returns and analyst ratings on all the stocks mentioned above.

Remember: This isn't meant to be a shopping list for your portfolio. Treat this list as a starting point, and do your own homework on these stocks. If you'd like to access interactive tools to analyze this list, click here.

Kapitall's Eben Esterhuizen, CFA, does not own shares of any companies mentioned. 

UGI is a Motley Fool Income Investor choice. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

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Related Tickers

10/25/2016 4:01 PM
AEO $16.87 Up +0.07 +0.42%
American Eagle Out… CAPS Rating: ****
BOH $74.57 Up +0.15 +0.20%
Bank of Hawaii CAPS Rating: *****
CAG $47.84 Up +0.15 +0.31%
ConAgra Foods CAPS Rating: ****
NSM $13.94 Up +0.33 +0.00%
National Semicondu… CAPS Rating: **
UGI $45.23 Up +0.57 +1.28%
UGI CAPS Rating: *****