Thursday, October 11, 2012

Three Great Dividend Stocks to Consider

We have been told that beauty lies in the eyes of the beholder. Sometimes, identifying great dividend stocks sounds like a similar task due to its relative subjectivity. To some younger investors, high dividend growth is the key to generating a sufficient dividend income stream at the time of their retirement. For other investors who are older, the income stocks with the highest yields might be the best solution to generate income in retirement. Some investors also like to concentrate their portfolios in no more than 15 – 20 carefully selected securities, while others try to hold as many stocks as possible.

Long term readers of my blog might have noticed that I try to avoid extremes in either direction, whether it is choosing high yield or high growth income stocks or choosing between a concentrated or an index like diversified portfolio. I prefer to focus on companies with yields and dividend growth in the middle. I also prefer to hold about 40 – 50 income stocks. The three stocks mentioned below are prime examples of my moderate approach to selecting dividend stocks.

The following three income stocks were chosen by me one year ago, as part of a collective effort by a group of dividend newsletters.

Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. This dividend champion has raised distributions for 25 consecutive years. The company has managed to boost dividends at an average rate of 8.80%/year over the past decade. Currently, Chevron trades at 8.70 times earnings and yields 3.10%. The company earned $13.44/share in 2011 and is expected to earn $12.84/share in 2012 and $12.84/share in 2013. Check my analysis of the stock.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. This dividend achiever has raised distributions for 15 consecutive years. Over the past decade, this master limited partnership has managed to boost distributions by 7.60%/year. Currently, Enterprise Products Partners yields 4.70%. It is one of the few Master Limited Partnerships which do not have incentive distribution rights, which eat into distribution growth for limited partners. In addition, Enterprise Products Partners is also one of the few MLPs which have a very good coverage of their distributions from distributable cash flows. Most of its assets generate fee based income any time crude oil or natural gas are being transported through its vast network of pipelines. I would like to add to my position on dips below $51. Check my analysis of the stock.

McDonald’s Corporation (MCD), together with its subsidiaries, franchises and operates McDonald’s restaurants primarily in the United States, Europe, the Asia Pacific, the Middle East, and Africa. This dividend champion has raised distributions for 35 years in a row. Over the past decade, the company has managed to boost dividends at an average rate of 27.40%/year. Currently, McDonald’s trades at 17.30 times earnings and yields 3.40%. The company earned $5.27/share in 2011 and is expected to earn $5.42/share in 2012 and $5.96/share in 2013. Check my analysis of the stock.

The following securities generated a return of 8.57% year-to-date and 26.04% since their selection in September 2011. In comparison, the S&P 500 delivered a 29.96% return over the past year and a 16.43% year through date through 9/30/2012.

The performance of other bloggers is listed below. Each of the eight bloggers selected 3 income stocks for a total of 24 dividend stocks.

Wealthy Canadian 37.0%
The Dividend Monk 34.0%
Dividend Mantra 28.2%
Dividend Growth Investor 26.1%
Passive Income Earner 22.5%
My Own Advisor 15.8%
The Dividend Guy Blog 12.0%
Dividend Ninja 10.0%
Susan Brunner

Full Disclosure: Long MCD, EPD, CVX

Relevant Articles:

How to retire with dividend stocks
Dividend Portfolios – concentrate or diversify?
10 by 10: A New Way to Look at Yield and Dividend Growth
Enterprise Products Partners (EPD): A Pipeline Cash Machine

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