A couple months ago, I wrote a column about the Dow's two best dividend-paying stocks. It was so popular that I decided to expand the list to 10. In the present column, I've accordingly selected and ranked what are arguably the Dow's 10 best dividend-paying stocks.
My selection and ranking criteria
I selected the companies to rank by screening for the Dow's 10 best-yielding stocks:
Johnson & Johnson
Source: Yahoo! Finance (as of Oct. 17, 2011).
I then ranked and scored them according to sustainability, predictability, and general quality:
- As a proxy for sustainability and growth potential, I looked at the dividend's size relative to free cash flow per share.
- As a proxy for predictability, I looked at when the company started paying a dividend.
- And as a proxy for overall quality, I looked at the companies' CAPS scores, our free service that pools the resources of the Motley Fool community to help investors differentiate between the market's best and worst stocks. Because CAPS scores go from one to five, however, I doubled each company's number to normalize it with the other categories.
I then added up the points and ranked the companies accordingly:
FCF Payout Ratio (Points)
Year Started Paying Dividends (Points)
Caps Rating (Points)
|General Electric||26% (10)||1899 (9)||4 (8)||27|
|Pfizer||28% (8)||1939 (6)||4 (8)||22|
|Johnson & Johnson||48% (5)||1944 (5)||5 (10)||20|
|DuPont||59% (3)||1904 (8)||4 (8)||19|
|Merck||52% (4)||1935 (7)||4 (8)||19|
|Travelers||27% (9)||1990 (3)||3 (6)||18|
|AT&T||70% (2)||1881 (10)||3 (6)||18|
|Verizon Communications||47% (6)||1984 (4)||4 (8)||18|
|Intel||43% (7)||1992 (2)||4 (8)||17|
|Kraft Foods||131% (1)||2001 (1)||4 (8)||10|
Source: S&P Capital IQ, DividendInvestor.com, and Motley Fool CAPS (as of Oct. 13, 2011). FCF payout ratio uses operating cash flow less capital expenditures as measure of free cash flow.
The Dow's top dividend-paying stocks
The companies that made this list aren't strangers to income-seeking investors.
General Electric and DuPont, for example, have paid quarterly dividends without fail for over 100 years each. And AT&T and Verizon currently pay the highest dividend yield on the index.
If the past and present are any indication of the future, in turn, then income-seeking investors would be well-advised to consider adding some or all of these stocks to their portfolios for the long run.
Foolish bottom line
While exercises like this can help you identify interesting investment ideas, you should never make a decision before researching the company itself. Ask yourself questions like: Do you trust the company's management and board of directors? Or, do you think the demand for its services and/or products will grow in the future?
In the meantime, if you're looking for ideas about where to find great dividends, I urge you to read our free report about 13 high-yielding dividend stocks. It profiles companies in a variety of sectors that are padding the pockets of income-seeking investors. To access it while it's still free and available, click here.
Editor's note: A previous version of this article used erroneous free cash flow information. We regret the error.
Fool contributor John Maxfield, J.D., does not have a financial position in any of the companies mentioned in this article. The Motley Fool owns shares of Johnson & Johnson and Intel. Motley Fool newsletter services have recommended buying shares of Intel, Johnson & Johnson, AT&T, and Pfizer, as well as creating diagonal call positions in Intel and Johnson & Johnson.
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