Dividend stocks are supposed to occupy the part of your portfolio that requires the least amount of maintenance. You find a company that has a dominant position in its industry, is run well, and offers a steady cash payout. You buy it and hold it for the long term, collecting those quarterly deposits for as long as you need them.
The problem is that many times, we chase the wrong things when looking for dividend stocks. While a high-yield stock might seem tempting when you hit the "buy" button, for example, it usually means there's something amiss with the company that's going to require vigilance on your part.
That's OK for some investors, but many simply want dividend stocks they don't have to babysit. Recently, we asked three of our analysts to offer up such stocks. Read below to see why Hershey's (NYSE:HSY), Kraft Foods (UNKNOWN:KRFT.DL), and Kimberly-Clark (NYSE:KMB) all fit this mold.
Dan Caplinger: Kraft Foods
The last thing dividend investors need is a stock that they have to watch constantly to feel comfortable that the company will be able to keep delivering income quarter after quarter. One company that clearly doesn't have that problem is Kraft Foods, the food-products giant that is a staple among American grocery shoppers.
Kraft carries a hefty 3.6% dividend yield right now, and the company has boosted its payout each year since splitting off from its international-snack sibling almost three years ago, with the most recent 5% boost coming late last year.
Naysayers will point out that Kraft has started to lose its way, losing its grip on its dominant market share in several major food categories. Yet fundamentally, Kraft still has a place in all but about 2% of U.S. households, and recent efforts like its comprehensive strategic review, big changes in the executive suite, and cost-saving initiatives are all aimed at helping to make Kraft as strong as it can be.
In the long run, Kraft has all of the ingredients it needs to recover to its former glory, and even though the food-products business remains extremely competitive, the Kraft brand and its quality should help the company keep its leadership role in the industry.
Bob Ciura: Kimberly-Clark
Consumer staples giant Kimberly-Clark is a great dividend stock you don't have to babysit. Kimberly-Clark is an industry giant with a number of strong brands, including Kleenex, Scott, Huggies, Pull-Ups, Kotex, and Depend. According to the company, it holds No. 1 or No. 2 share positions in more than 80 countries across the globe.
Its portfolio of industry-leading brands means Kimberly-Clark's investors don't have to constantly monitor the stock. Kimberly-Clark generated $1.8 billion of free cash flow last year, and paid $1.2 billion of dividends. This means its free cash flow payout ratio was a very comfortable 66% in 2014. Maintaining a modest payout ratio means there should be plenty of room for future dividend growth, which would be right in line with Kimberly-Clark's history.
And, Kimberly-Clark has a long track record of steady dividend payments. It's paid a dividend for 81 years in a row, and has increased its dividend for 43 consecutive years. This streak includes the very recent 4% bump up in February. At its current stock price, Kimberly-Clark offers a 3.3% dividend yield.
Brian Stoffel: Hershey's
In terms of yield, Hershey's isn't nearly as sexy as the previous two picks, as its current dividend is 2.1%. But in terms of not having to babysit it, it is every bit as worthy as Kimberly-Clark and Kraft.
By owning shares of Hershey's, you also own a part of some of the leading global chocolate brands, like Reese's, York, Kit Kat, Almond Joy, Cadbury, and Mounds -- as well as non-chocolate brands like Twizzlers, Jolly Ranchers, and Payday. The company has a 34% market share in U.S. chocolate, and the International Cocoa Organization lists the company as the sixth-largest chocolate company in the world -- based on 2014 sales.
Over the past couple of years, prices for cacao -- the main ingredient in chocolate -- have soared on high demand in Asia. This led many to worry that companies like Hershey's would have to raise prices, and that customers would balk at the increases. But that hasn't been the case; revenue has grown by a steady 7% per year over the past four years.
Perhaps most important from a dividend investor's perspective, the company has a safe dividend. While 89% of free cash flow was used to pay its dividend over the past 12 months, that was an aberration -- likely the result of the timing of purchases toward the end of the year, and unfavorable results of cash flow hedges.
Zooming out a bit, the company has averaged using only 59% of free cash flow to pay dividends over the past three years -- meaning the dividend is safe and has room for further growth.