3 Stocks Every Dividend Investor Should Own

Ever since savings rates hit rock-bottom lows, dividend stocks have come into vogue with income investors. Zeroing in on dividend stocks isn't difficult or time-consuming, but it certainly pays to know what makes a safe, high-quality dividend stock one you can hold on to for many years.

I've uncovered three stocks that fit the bill, each harnessing an enticing yield, a sustainable dividend payout ratio, and reliable dividend growth.

1. Illinois Tool Works (NYSE: ITW  ) This industrial goods manufacturer is a card-carrying member of the S&P 500 Dividend Aristocrats, an elite group of blue chip companies that have raised their dividends for at least 25 consecutive years. Amazingly, Illinois Tool Works has increased its dividend for 49 straight years. 

The stock currently boasts a 2.3% dividend yield and recently grew its dividend by 5%. Illinois Tool Works' payout ratio, a measure that indicates how much of its net income is returned to shareholders in the form of dividends, is a very healthy 26%. This indicates the company has plenty of room to increase its dividend in the future.

Illinois Tool Works boasts huge business in the construction and transportation industries, two fields very hard hit during the recent recession. However, the diversified manufacturer stands to benefit greatly from a gradual economy recovery. 

2. Walgreen (NYSE: WAG  ) Another Dividend Aristocrat, Walgreen has increased its dividend for an impressive 37 consecutive years. The company pays a dividend yield of 2.2%, and its payout ratio is a respectable 47%.

The drugstore retailer recently grew its dividend by a highly desirable 22%. In fact, during the past decade, Walgreen has raised its dividend 633%! That far outpaces the Consumer Price Index, which grew 27% in the same period.

Walgreen provides millions of Americans daily access to pharmacy, health, and wellness services. Its Take Care Health Systems subsidiary is the largest manager of worksite health and wellness centers throughout the country. And the wrinkle between Walgreen and pharmacy benefit manager Express Scripts that was ironed out last year has resulted in an influx of customers returning to Walgreen's pharmacies. 

3. McDonald's (NYSE: MCD  ) McDonald's can be crowned not only a Dividend Aristocrat, but also the king of fast food. This server of Big Macs has boosted its dividend for 36 straight years. The stock currently boasts a dividend yield of 3%. 

Even though McDonald's 55% dividend payout ratio is more than Illinois Tools Works' and Walgreen's, the company's lucrative business model supports the higher ratio. That's because franchisees own the majority of McDonald's restaurants. They fork over the big capital outlays, while McDonald's collects royalties, creating stable profits for the company.

Every day, the fast-food giant serves 69 million hungry customers in more than 34,000 restaurants spanning 119 countries. Clearly, McDonald's incredible brand strength is globally recognized. In fact, brand consultancy firm Interbrand ranks McDonald's No. 7 on its Best Global Brands 2012 list, with the company securing a top-10 spot every year since the list's inception.  

Foolish takeaway
Solid income-generating stocks like these possess generous dividend yields, sustainable payout ratios, and ample growth potential, all making them great buys for dividend investors.

If you're an investor who prefers returns to rhetoric, you'll want to read The Motley Fool's new free report, "5 Dividend Myths... Busted!" In it, you'll learn which stocks provide premium growth and whether bigger dividends are better. Click here to keep reading. 


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