A funny thing happened about five years ago: Dividend stocks came back into fashion.
They used to be looked upon as stodgy investment vehicles left in the dust by growth stocks. During the Internet bubble -- when metrics like "eyeballs" upended revenue and profitability as measures of future financial success -- you practically couldn't give them away.
All of this changed, however, with the market crash in 2008, as investors slowly regained an appreciation for dividend stocks as safe havens which also happened to pay yield. With short-term interest rates near zero and scant economic growth on the horizon, the idea of an annual dividend yield of 5% didn't seem so bad after all. There's since even been speculation of a potential dividend bubble.
Good dividend stocks aren't hard to find
Despite this attention, good dividend stocks aren't hard to find. You just need to know where to look. And one place to start is the Dow Jones Industrial Average (INDEX: ^DJI ) , arguably the best-known stock index in the world.
According to The Wall Street Journal, over the past year, the index's average dividend yield has gone from 2.5% last year to 2.7% this year, an increase of 8%. And as you can see below, this places it at the top of the other most commonly referenced indexes.
Source: Wall Street Journal's Market Data Center.
Within the index itself, the prize for the highest-yielding stocks goes to telecom giants AT&T (NYSE: T ) and Verizon (NYSE: VZ ) , which offer yields of 5.1% and 4.7%, respectively. While Verizon temporarily cut its payout in the midst of the financial crisis, AT&T is a member of the S&P 500's dividends aristocrats, stocks that have increased their dividends every year for at least a quarter-century.
Following close behind are pharmaceutical makers Merck (NYSE: MRK ) and Pfizer (NYSE: PFE ) , which pay out 4.4% and 4%, respectively. Merck made headlines last year by raising its dividend by 11%, the first time it had done so since at least 2004. And Pfizer has been consistently raising its quarterly dividend payments since slashing it in half in 2009.
While all four of these companies are leaders in their respective industries, it's my opinion that the first two, and AT&T in particular, is the most appropriate for investors looking for long-term, sustainable yield.
Beyond the fact that AT&T has a long and sustained record of increasing its dividend, the main reason is that the pharmaceutical industry is going through a period of deconsolidation -- the consequences of which are difficult to predict. Pfizer recently sold off its baby-formula business to Nestle, and competitor Abbott Laboratories is spinning off its entire pharmaceutical division under the name AbbVie. Although Merck hasn't been caught up in this to date, trends like this are often contagious.
The other fish in the sea
Of course, the four stocks I've mentioned above are only a small sample of the great dividend stocks available for investors to buy. For a more comprehensive list to satisfy your dividend desires, check out our recently released free report: "Secure Your Future With 9 Rock-Solid Dividend Stocks."