Buying 11 stocks might seem like a lot... but it's not as daunting as it sounds.
The 11 dividend-paying stocks you're about to discover can serve as a complete dividend portfolio -- one that will help you sleep at night.
Together, these stocks consist of financially sound blue chips, up-and-coming emerging market plays, even a speculative pharmaceutical play. And each and every one of them comes with the safety of a dividend.
Feel free to pick and choose your favorites. But altogether these 11 stocks hand you a wide variety of yields across a wide range of industries, coupled with solid growth potential.
This is important because dividend-paying stocks historically outperform non-payers over the long term.
According to Ned Davis Research, publicly traded companies paying a dividend returned 10.1% compared with just 4.1% for non-dividend companies between 1972 and 2006.
What's more, during periods when the market declined between 1970 and 2000, dividend stocks outperformed non-dividend-paying stocks by a 1.5% margin every month.
It's no wonder that the authors of the book Triumph of the Optimists calculated that over an investor's lifetime, a dividend-reinvesting strategy generates nearly 85 times the value of a portfolio that relies just on stock gains.
So it's easy to see why investing a significant portion of your portfolio in dividend-paying stocks makes sense in an uncertain market.
Click below to get started with your first golden opportunity...
Many investors believe Yum! Brands is the best China play that isn't a Chinese company.
As the company behind KFC, Pizza Hut, and Taco Bell, it's certainly a compelling shot at long-term gains for investors who want some Chinese exposure.
But we think there is one other fast-food giant that offers the same chance to cash in on the growth of the Chinese consumer, but with a bit more safety. That's because McDonald's [NYSE: MCD] comes with an attractive dividend yield, as well as a handful of less-obvious catalysts.
Let me explain.
McDonald's operational performance is top notch. That's why it's been able to pay and increase dividends for decades. The restaurant titan just upped its dividend, making for an annual $3.08 per share -- or 3.3% -- more than double the amount it paid out five years ago.
Of course, historical dividend growth doesn't mean much unless you owned the stock over that period. You also need to consider how your company might increase its payouts in the future.
So consider the following table:
|Company||Dividend Yield||5-Year Dividend Growth Rate|
|Procter & Gamble||3.2%||10%|
While McDonald's and Procter & Gamble offer lower yields, their strong consumer franchises give them much greater ability than the other two to raise their dividends over time.
On the other hand, both Frontier and Annaly are less able to sustainably deliver dividend growth. While their yields are both sizable, the prospects for future gains are limited.
Frontier operates in the declining fixed-line telecom space, and has cut its payout as it integrates some rural operations recently acquired from Verizon. Meanwhile, Annaly increased its yield because its net interest margin increased as interest rates dredged the bottom.
While Annaly is a nice play in disinflationary times, interest rates won't remain low forever, and when they rise, its dividend will likely take a hit.
Of course these criticisms don't mean either company isn't worth owning. But it is a reminder that you need to understand the sustainability of your dividends. Blending high payouts with high dividend growers could make a lot of sense.
McDonald's occupies something of a middle ground, and its recent massive increase in its dividend payout is just the beginning. There are good signs that the company has plenty more in store.
McDonald's has indicated that for the future it intends to pay out all its free cash flow. Some of that cash will go to repurchase shares. In September 2009, McDonald's authorized a $10 billion repurchase plan, and the company wasted no time in snapping up shares. It has been buying back billions of dollars worth of its shares.
But the rest of that cash seems earmarked for dividend increases, which could be significant.
McDonald's has at least two other potential opportunities to unlock cash.
First, the company is selling its company-operated stores to franchisors. Right now it operates only about one-fifth of its locations. It's great to see this number continue to come down, because McDonald's realizes a better-than-80% margin on franchised stores. On the other hand, its company-operated stores have less than a 20% operating margin. So by refranchising more stores, McDonald's will increase its margins and free capital tied up in its stores, giving it even more opportunity to raise its dividend.
The second hidden store of value is in McDonald's real estate holdings. Even as the company sells off franchises, it maintains the rights to most of its land and buildings. Some of that real estate is in prime locations and has been sitting on the company's books at cost for decades.
The mechanism that Mickey D's might use to unlock that value is unclear, but the value is there. And since CEO Jim Skinner is pulling out all the stops to make the company a more efficient user of capital, you can expect him to figure out a way to return this value to shareholders.
A quick dividend discount valuation suggests that McDonald's is about fairly valued..
But given the company's willingness to return all its free cash flow, I'm willing to bet that McDonald's can achieve -- and likely exceed -- these goals.
Click below to uncover 5 additional companies that would make a great addition to your IRA.
It's smart to consider some broad trends that will develop in the coming decades.
Below are a few that many market watchers believe will play out over that time period, along with 5 ways to profit from them:
Whether you think emerging markets will bring the next global boom or are simply overhyped, the rise of billions of people in emerging economies means one thing: More people are going to need more things. In particular, companies that produce the raw materials used for all sorts of necessities will be poised to profit in the decades to come.
For instance, Commercial Metals [NYSE: CMC] recycles, manufactures, and distributes steel and metal. It also boasts a 2.9% dividend.
Similarly, the Vanguard Energy ETF [NYSE: VDE] owns a basket of oil and gas drillers, exploration, and refining companies. It should profit tremendously as demand for oil and gas spikes in these emerging economies.
An aging population will need more health care, which supports not only obvious picks like high-yielding Merck [NYSE: MRK] but also riskier plays.
And pharmaceutical up and comer Warner Chilcott [Nasdaq: WCRX] recently paid its first semi-annual dividend.
Just because you should take some risk doesn't mean you should take too much risk. It makes sense to balance risky plays like the ones above with some more secure picks.
Companies with a long history of paying ever-increasing dividends are a good place to round out your stock portfolio.
Procter & Gamble [NYSE: PG] has raised its dividend each year for the past 50 years. More importantly, it boasts a strong stable of products that people use and rely on. That doesn't mean you can blindly buy and forget about it, but you don't necessarily have to keep an eye on it as much as you might with less established companies.
This isn't the only stock that has raised its dividend over the past 50 years.
For 5 more stocks that have also boosted their dividends -- and will likely continue to do so over the next 50 years -- click below.
There's no better indicator of a financially secure company than a long history of paying dividends to shareholders.
Despite the dividend-slashing trend of the past few years, several companies maintained long-standing streaks of rising dividend payments.
Bucking the trend
Many companies with long histories of paying dividends to shareholders broke those streaks during the financial crisis. General Electric cut its dividend for the first time in decades, and many financial stocks, including Citigroup and Bank of America, either eliminated dividend payments or drastically cut them.
But several companies managed not only to maintain their dividends but also to lengthen their track record of annual increases. Just take a look at some of the companies with the longest current streaks of raising their dividend payments every year:
|Stock||Current Dividend Yield||Streak of Annual Dividend Increases|
|Genuine Parts [NYSE: GPC]||3.0%||54 years|
|Emerson Electric [NYSE: EMR]||2.9%||54 years|
|3M [NYSE: MMM]||2.4%||52 years|
|Diebold [NYSE: DBD]||3.5%||57 years|
|Dover [NYSE: DOV]||2.1%||55 years|
Just think about everything these companies endured over the past half-century...
After a booming market in the 1960s, these businesses survived the oil shock and inflationary periods during the 1970s. They made it through a number of recessions, including the stagflationary slowdown in the early 1980s and the technology bust from 2000 to 2002. They watched as what used to be localized economies turned global and adapted to changes in their industries.
Through it all, they've maintained one commitment to investors: They've kept the dividends coming.
As valuable as dividend stocks are, you shouldn't get the idea that it's been a smooth ride for investors every step of the way. Although shares of companies with long dividend streaks appreciated considerably over the years, shareholders also endured bumps along the way.
As an example, take a look at the haircut that investors took on these stocks during 2008:
If you're thinking that Diebold was spared from the carnage, think again -- its big loss came a year earlier, as the stock dropped 36% in 2007.
Still -- as big as those losses were, they were less than the S&P 500's 37% drop. That suggests that at some level, investors recognize that these businesses have an above-average chance of making it through economic troubles.
More important, when high-quality stocks run into big share price declines it presents an opportunity for investors to add to their positions. As long as the core business is still intact, price dips are exactly when you want to buy.
So given their great past track record, will these companies manage to extend their current streaks to make the 100-year mark? Obviously, a lot can happen in 50 years, as we've seen with these stocks. And certainly, other promising stocks with long histories of increasing dividends have fallen short during tough times.
Yet given the challenges that these companies have successfully dealt with, there's every reason to believe that they can handle any future difficulties efficiently and effectively.
There are obviously many other companies that have several decades of consecutive dividend growth. For 2 more stocks that are official recommendations of Motley Fool co-founders David and Tom Gardner from their market-beating Motley Fool Stock Advisor newsletter, click below.
Motley Fool co-founders David and Tom Gardner understand the advantage dividend investing gives investors with a long-term mentality.
In fact, they've recommended many strong dividend-paying stocks to members of their flagship Motley Fool Stock Advisor newsletter over the years.
Two of those stocks in particular stand out. They both have a long history of consistently raising their dividends every year. And they both offer the potential for market-beating gains over the long term.
The first company is an insurance powerhouse that has raised its dividend for 29 consecutive years. It has powerful brand awareness -- I suspect you're familiar with its national marketing campaign, which offers it a strong competitive advantage. Plus it boasts industry-leading returns on equity and a balance sheet much stronger than insurance regulations require.
The second company operates in the business services industry, and has raised its dividend consecutively over the past 29 years. Though the US's high unemployment rate has temporarily stunted its growth, its robust cash flow has helped it endure the downturn. David and Tom believe that as the job market begins to improve, this company should see better sales growth and stronger margins.
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