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With record-low interest rates, dividend investing is the current way that a lot of investors are making income in their portfolios. There are thousands of dividend-paying companies out there, so choosing a dividend should extend beyond the highest yield. High-yielding master limited partnerships could implode your portfolio, while dividends from the market's hottest dividend sector could ultimately burn you. Stocks with scary-high dividends require further research.
A steady sector
With that in mind, I decided to do a simple screen for high-dividend stocks from a sector that usually continues to perform even in times of economic difficulty: consumer goods. To find the best dividends in this sector, I looked at profitable companies that currently yield more than 5%. Three companies that made the cut weren't that surprising, but the others were pretty surprising for me:
|Vector Group (NYSE: VGR )||Tobacco||8.9%||177.5%|
|Pitney Bowes (NYSE: PBI )||Business equipment||7.8%||43.3%|
|Altria Group (NYSE: MO )||Tobacco||5.7%||67.3%|
|Avon Products (NYSE: AVP )||Personal products||5.4%||60.2%|
|Reynolds American (NYSE: RAI )||Tobacco||5.5%||84.0%|
|Douglas Dynamics (Nasdaq: PLOW )||Auto parts||5.4%||113.0%|
Quitting won't happen overnight
We've known for years that cigarettes are bad for you, yet these companies continue to sell products. According to the American Cancer Society, nearly 20% of American adults are smokers, prompting me to think the three tobacco companies on this list will continue to make money -- both for themselves, and more importantly, their investors.
Mature business = high yields
The second-highest yield on this list comes from a company that, for 90 years, has helped businesses manage their postage needs. Though personal correspondence has largely been replaced by other electronic forms of communication, businesses around the world still have postal needs. While smaller businesses are targeted by much smaller Stamps.com (Nasdaq: STMP ) , Pitney Bowes has more than 2 million customers worldwide and continues to be dominant in the space. Since this is all about dividends, it has also increased its dividend each year for the past 28 years, making it one of the S&P 500's "dividend aristocrats."
The door-to-door sales force of Avon consultants has helped the company make this list. When I was a kid, I thought buying things from the Avon Lady was mandatory since my mom wouldn't let hers leave without buying something every other week. While this may not be how all Avon-based relationships are, it was something that has stuck with me for more than 20 years. With one of the lowest payout ratios on this list, it has further room to grow its dividend, continuing a trend of 17% dividend growth over the past three years.
How now? Try PLOW
In my opinion, the biggest surprise on this list is the appearance of Douglas Dynamics, a little-known company from Milwaukee specializing in its ticker -- plows and plow accessories. For some reason, the management of the company is committed to paying dividends, though not at a 113% clip going forward. As my Foolish colleague John Maxfield points out, the purchase of snow plows can only be delayed so long, but the company saw strong growth in the sales of accessories, which customers purchased in lieu of new plows when the economy was down the past few years.
There are literally thousands of opportunities for dividends in the market today. However, by looking at a sector that typically sees a lot of consumer activity, you can identify some companies that could add great dividends to your portfolio. Or you can join thousands of others have and get your free copy of our special free report, "Secure Your Future With 11 Rock-Solid Dividend Stocks," and start making money today. Click here to sign up!