Tuesday, July 7, 2009

12 Dividend Stocks to own in this market

With markets recovering from the lowest levels since 1996 and currently trading at the same levels as one decade ago, buy and hold investors’ portfolios are hurting. Dividend investors are also sharing the pain, as several prominent companies such as Pfizer, General Electric and JP Morgan have cut their dividends. Despite the fact that most major sectors have not been left without damage to dividends, the majority of the cuts have been centered in the financials segment of the market. Furthermore, despite all the gloom surrounding the stability of payments, investors who are sticking to a sound strategy of diversification, dollar cost averaging and dividend reinvestment are still enjoying increases in their dividend income.

I believe that whether the bottom has been hit or not astute dividend investors should seize the opportunity that the current bear market offers. I ran a screen on the S&P Dividend Aristocrats index to identify attractively valued stocks using the following criteria: (source Yahoo Finance)

1. Dividend Payout Ratio is less than 50%
2. Price/Earnings Ratio is less than 20
3. Current Dividend Yield is at least 3%

There were 12 companies that made the cut. Check the list below:
(Alternative link to view the watchlist)
I believe that diversification is important as well. Below you could find a breakdown of the list by sector plus a link to my most recent stock analysis of each company.

Consumer Discretionary

(VFC) VF Corp (analysis)
(MHP) McGraw-Hill Companies (analysis)
Consumer Staples
(PG) Procter & Gamble (analysis)
(AFL) AFLAC Inc (analysis)
(CB) Chubb Corp. (analysis)
Health Care
(ABT) Abott Laboratories (analysis)
(JNJ) Johnson & Johnson (analysis)
(MMM) 3M Co (analysis)
(DOV) Dover Corp. (analysis)
(EMR) Emerson Electric (analysis)
(SWK) Stanley Works (analysis)
(NUE) Nucor Corp. (analysis)

The thing that separates these companies from other dividend stock lists is that they have a tendency to increase their dividends consistently every year. With an average yield of 3.60% this list has generated an average dividend growth of 11% over the past decade. If history were to repeat itself over the next 6 –7 years, the average yield on cost should be double what you can get today. In the worst case I expect that the income stream growth from this list of stocks would at least match the rate of inflation over time.
Full Disclosure: I have positions in all stocks above except for VFC and SWK, which I plan on buy on dips.
Related Posts:
- Dividend Portfolios – concentrate or diversify?
- Replacing dividend stocks sold
- Dividends versus Share Buybacks/Stock repurchases
- General Electric (GE) Cuts the Dividend

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