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5 Top Dividend Stocks for the Long Term

By John Reeves and David Meier – Apr 11, 2013 at 2:03PM

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Five compelling dividend stock ideas.

Equity investors who are looking for income are often tempted by a particular stock's dividend yield. We believe they'd be wiser to focus on a company's expected dividend growth. That's the best way to earn outstanding long-term total returns.

Look at the amazing results of McDonald's (MCD 1.99%) over the past several decades, for example. The company has been able to deliver outstanding total returns by paying out higher and higher dividends each year over an extremely long time horizon. Ultimately, investors are willing to pay higher and higher prices for shares that offer a growing stream of dividends.

Given the importance of dividend growth for driving long-term, total returns, we've identified five remarkable companies that are projected to grow their dividends significantly over the next five years.

1. Coach (TPR 4.36%)
Coach designs, markets, and sells fashion handbags, apparel, and accessories.

Investing thesis: Coach will likely deliver increases in both its share price and its dividend payout over the next five years. That attractive combination could result in multibagger total returns for investors over the long term.

2. McDonald's
McDonald's is a global fast-food restaurant powerhouse.

Investing thesis: McDonald's has increased its dividend each and every year since it first started paying one in 1976. And the iconic fast-food franchise shows no signs of slowing down its ever-growing dividend payouts. The end result for investors will be market-beating total returns in the future.

3. Western Union (WU 2.52%)
Western Union is the global leader of money transfers and payment services.

Investing thesis: Western Union's dividend will grow as the company's earnings steadily rise, and the company increases the payout ratio over time.

4. Intel (INTC 4.66%)
Intel is the leading manufacturer of microprocessors.

Investing thesis: With a 4% dividend yield and the potential to increase its dividend 8%-12% per year, Intel's total return should outperform the market, even during tough industry conditions.

5. Apple (AAPL 3.08%)
Apple creates mobile communication and media devices, personal computers, and portable digital music players. It also sells software, services, peripherals, networking solutions, and third- party digital content and applications that support its devices.

Investing thesis: Apple began paying a dividend again in 2012 -- the first in 17 years! With an incredible lineup of existing products, a rock-solid balance sheet, and tremendous growth possibilities, Apple offers one of the best risk-adjusted total return opportunities in the market over the next five years.

Improving the odds of beating the market
We feel confident that all five of the companies mentioned above will outperform the broader market over the long term. If you're looking for some more long-term investing ideas with great dividends, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

David Meier owns shares of Apple. John Reeves owns shares of Apple. The Motley Fool recommends Apple, Coach, Intel, McDonald's, and Western Union. The Motley Fool owns shares of Apple, Coach, Intel, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$142.45 (3.08%) $4.25
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$235.34 (1.99%) $4.60
Intel Corporation Stock Quote
Intel Corporation
INTC
$26.97 (4.66%) $1.20
Tapestry, Inc. Stock Quote
Tapestry, Inc.
TPR
$29.67 (4.36%) $1.24
The Western Union Company Stock Quote
The Western Union Company
WU
$13.84 (2.52%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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