The Kiplinger dividend 15: Our favorite dividend-paying stocks

These 15 dividend stock picks, satisfying income investing needs of every kind, have so far kept their payouts intact while many big firms have cut back.

  • By Ryan Ermey,
  • Kiplinger
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Income investors love dividend stocks for their regular payouts; any stock-price appreciation is just gravy. The Kiplinger Dividend 15, the list of our favorite dividend-paying stocks, delivers on the first front, yielding 3.7%, on average, compared with a 1.9% yield for Standard & Poor's 500-stock index (.SPX) and a paltry 0.7% yield for the 10-year Treasury bond.

However, after a long string of outperformance, our list has come up a little shy over the past 12 months. While several of our Kiplinger 15 components have put up double-digit returns despite the bear market, the overall 3.4% average total return is roughly 3 percentage points behind the S&P 500. Moreover, chaos in the energy patch has prompted us to jettison one member.

But there is some good news.

For one, none of the members of the Kiplinger Dividend 15 has cut or suspended its dividend this year. In most years, that wouldn't be news. But in response to the pandemic, more than 60 S&P 500 firms and dozens of other companies have shored up cash by cutting or suspending their dividends.

Also, many of our stocks – which were richly valued when we discussed them last fall – have lost some of their froth. And perhaps most salient for dividend investors looking for new holdings, drops in price help bolster a stock's yield; as a result, several yields in the Dividend 15 are well above 4%.

Let's take a look at the Dividend 15. We divide these payers into three categories: stocks with a long history of stable dividends, stocks with the potential for rapid growth in their payouts, and high yielders. Find a dividend stock that suits your needs, or select a mix.

Dividend stalwart: 3M

  • Yield: 3.7%
  • Annual dividend: $5.88
  • Consecutive years of increases: 62
  • Five-year dividend growth rate: 7.5%
  • One-year total return: -6.9%

3M (MMM) boosted its payout by 2% this year, and thus is on track for a 62nd consecutive year of uninterrupted dividend growth.

While 3M has broadly struggled since late 2018, the firm – which makes an array of products involving chemical coatings, sealants and ad­hesives – posted encouraging first-quarter earnings to help its rebound off the March lows. That was thanks in part to strong results in its personal safety unit, which is the division responsible for N95 masks, among other products.

"Organic sales rose 0.4% in the first quarter of 2020, and COVID-related respirator sales added about $100 million to sales and enhanced organic sales growth by 130 basis points," write William Blair analysts.

3M did withdraw its full-year guidance. And while William Blair has reduced its 2020 and 2021 earnings targets, its analysts note that "the company's financial strength remains strong."

Dividend stalwart: Air Products & Chemicals

  • Yield: 2.2%
  • Annual dividend: $5.36
  • Consecutive years of increases: 38
  • Five-year dividend growth rate: 9.3%
  • One-year total return: 9.3%

Air Products & Chemicals (APD) serves customers in the energy, industrial, health care and consumer markets. The company is the largest supplier of hydrogen to petroleum refineries, which use the gas to upgrade heavy crude oil. Many of its customers sign contracts for 10 to 20 years, giving the firm long-term stability.

APD made an encouraging overture to income investors early on in 2020, announcing an 18-cent-per-share dividend hike – or 15.5% – that marks its largest dividend increase in company history.

Dividend stalwart: Emerson Electric

  • Yield: 3.2%
  • Annual dividend: $2.00
  • Consecutive years of increases: 63
  • Five-year dividend growth rate: 1.3%
  • One-year total return: -3.9%

Emerson Electric (EMR) is best known for its industrial automation business, providing technology, consulting and project management that helps industrial firms optimize safety, efficiency and productivity.

The stock's attempt at recapturing the all-time highs it set in 2018 were foiled thanks to the market swoon earlier this year. In April, the company downgraded its full-year adjusted earnings guidance from $3.55-$3.80 per share to $3.00-$3.20 per share.

That said, Credit Suisse, which has EMR as a "High Conviction Call," writes that the company is "positioned well to participate in increased demand for Hybrid automation applications."

Dividend stalwart: Johnson & Johnson

  • Yield: 2.9%
  • Annual dividend: $4.04
  • Consecutive years of increases: 58
  • Five-year dividend growth rate: 6.1%
  • One-year total return: 2.0%

Like all drug companies, pharmaceutical powerhouse Johnson & Johnson (JNJ) comes with risks — most recently, legal battles involving its talcum powder (which it finally discontinued in North America) and surgical mesh products. Nevertheless, the company is so broadly diversified that it seems some area of the business is always ready to shoulder the load.

"Our analysis of April and May scrip trends and sales for April for JNJ's largest U.S. Pharma franchises confirms that the business is tracking (roughly $200 million) ahead of our Q2 estimates, which equates to (roughly 5 cents per share) of theoretical EPS upside)," write Credit Suisse analysts, who reiterate their Outperform rating on JNJ.

Johnson & Johnson announced a 6.3% payout hike in April that puts the firm on pace to extend its dividend growth streak to 58 years.

Dividend stalwart: McDonald's

  • Yield: 2.7%
  • Annual dividend: $5.00
  • Consecutive years of increases: 43
  • Five-year dividend growth rate: 8.0%
  • One-year total return: -11.6%

The pandemic was hard on food-service firms, and fast-food icon McDonald's (MCD) is likely to see steep declines in sales and earnings this year. But the firm looks positioned to outperform peers as the economy reopens, given the strength of its balance sheet and its ability to maintain customer demand during recessions because of its affordable meal offerings.

Investors have long been able to rely on the Golden Arches for steadily increasing income, with McDonald's having raised its payout every year since 1976. That's a big part of why we've recently added MCD to the list to replace Exxon Mobil (XOM).

Dividend stalwart: Procter & Gamble

  • Yield: 2.6%
  • Annual dividend: $3.16
  • Consecutive years of increases: 64
  • Five-year dividend growth rate: 3.6%
  • One-year total return: 8.7%

An astonishing 33 of Procter & Gamble's (PG) 65 brands, including Tide and Bounty, generate more than $500 million in annual sales each. The firm recently pared about 100 brands from its roster, allowing P&G to refocus on innovation – a move that has put the firm's earnings on an upward trajectory.

The stock's 70%-plus return since May 2018 has eaten into the yield, which now stands at 2.6%. But P&G looks ready to extend its streak of annual dividend increases on the back of steadily growing earnings, as well as sales that surged in the early stages of the coronavirus outbreak.

Dividend stalwart: Walmart

  • Yield: 1.8%
  • Annual dividend: $2.16
  • Consecutive years of increases: 47
  • Five-year dividend growth rate: 2.0%
  • One-year total return: 8.1%

Walmart (WMT) has found ways to compete in the face of changing consumer preferences and the growth of online retail. In June, the retailer announced it would partner with Shopify (SHOP) to open its e-commerce platform to small and medium-sized third-party retailers.

Wall Street analysts don't expect much earnings growth in the fiscal year that ends in January 2021. But factoring in the firm's glut of cash, Walmart is a safe bet to continue its 47-year tradition of dividend hikes.

Dividend grower: AbbVie

  • Yield: 4.8%
  • Annual dividend: $4.72
  • Consecutive years of increases: 48
  • Five-year dividend growth rate: 18.3%
  • One-year total return: 39.8%

Pharmaceutical firm AbbVie (ABBV) has its challenges, including the fact that it's set to lose exclusivity on its blockbuster immunology drug Humira in 2023.

In a bid to diversify its product lineup, the firm acquired fellow drugmaker Allergan in a deal that closed in May. While investors sent shares plummeting in 2019 right after news of the merger was announced, they've since warmed to the union, which bolsters AbbVie's offerings with lucrative treatments such as Botox. Execs at AbbVie say the deal should allow the firm to boost operating cash flow and maintain its dividend-growth policy.

ABBV shares are up more than 50% since the stock's initial selloff.

Dividend grower: Home Depot

  • Yield: 2.4%
  • Annual dividend: $6.00
  • Consecutive years of increases: 11
  • Five-year dividend growth rate: 20.5%
  • One-year total return: 20.1%

Shares of Home Depot (HD) held up better than the broader market throughout the downturn, and they're currently up 14% year-to-date and sit near all-time highs.

HD stock has put together an annualized total return of 19.8% over the past five years. The home-improvement giant has improved its dividend at a slightly higher rate in that time frame, including a 10% payout hike to $1.50 per share quarterly that was announced in March.

"Although we are only a month and a half into the quarter, we believe our Home Depot second quarter comp estimate of 5.5% and 7.0% for Lowe's may be too low," writes Stifel analyst John Baugh, which rates HD shares at Buy. "We are raising our second quarter comp estimate and price target for each company and continue to believe home improvement spending should continue to be strong and was not pulled forward or just helped by stimulus. Our Home Depot price target is now $276 and Lowe's is $156."

Dividend grower: Lockheed Martin

  • ​Yield: 2.7%
  • Annual dividend: $9.60
  • Consecutive years of increases: 17
  • Five-year dividend growth rate: 9.9%
  • One-year total return: 0.1%

Lockheed Martin (LMT) is the world's largest producer of military weaponry and the maker of the F-35 fighter jet, which accounts for 25% of the firm's sales. The Pentagon plans to order nearly 2,500 F-35s, plus Lockheed is producing the jet for eight partner nations.

Demand for the F-35, along with increased military spending, should drive Lockheed's earnings and cash flows higher, supporting continued growth for a dividend that has increased nearly 10% per year, on average, over the past five years.

Dividend grower: Texas Instruments

  • Yield: 2.9%
  • Annual dividend: $3.60
  • Consecutive years of increases: 16
  • Five-year dividend growth rate: 21.5%
  • One-year total return: 11.6%

Texas Instruments (TXN) specializes in analog microchips that are used to digitize readings of real-world phenomena, such as sound and temperature. The firm does a good job elbowing out competitors, say Morningstar analysts, because chips are difficult to switch out once they are integrated into a product design.

TI earmarks more than 10% of sales for research and development, and it could see an explosion of new applications in the Internet of Things, with more internet-connected devices in need of microchips.

Texas Instruments has hiked its dividend by more than 21% per year, on average, over the past five years.

High yield: Blackstone Group

  • Yield: 3.9%
  • Annual dividend: $1.97
  • Consecutive years of increases: 0
  • Five-year dividend growth rate: -5.8%
  • One-year total return: 20.0%

Asset manager Blackstone Group (BX) has $539 billion in assets under management. The firm's quarterly dividend is variable and depends on what the company earns. At the moment, shares yield a little less than 4%, but the yield has been above 6% for much of the past five years and has even ballooned into double digits for a few months of that.

The firm recently reclassified itself as a corporation, rather than a master limited partnership. That means investors who purchased shares after July 1, 2019, don't receive a K-1 form, which can complicate taxes. The downside is that Blackstone can now scale back its dividend policy; execs have said they don't intend to do so, but payouts have been on the decline of late.

While dividends might be getting chintzier, investors likely aren't complaining about the 20% total return they've enjoyed over the past year.

High yield: Enterprise Products Partners, LP

  • Yield: 10.0%
  • Annual distribution: $1.78*
  • Consecutive years of increases: 23
  • Five-year distribution growth rate: 3.5%
  • One-year total return: -34.6%

Enterprise Product Partners (EPD) is the largest MLP by market value and the most diversified, with a network of pipelines and storage depots to transport and store natural gas, oil and other petrochemicals.

Slowdowns in exploration and pro­duction have dinged profits. But Enterprise enjoys a diverse array of high-quality clients and produces ample cash to fund its payout.

The firm pays 66% of excess cash as a distribution, well below the 90% threshold that would be concerning for a master limited partnership, says Brian Bollinger, president of research firm Simply Safe Dividends.

While energy concerns forced our hand on Exxon Mobil, EPD stays on our list.

* Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time.

High yield: Realty Income

  • Yield: 4.6%
  • Annual dividend: $2.80
  • Consecutive years of increases: 26
  • Five-year dividend growth rate: 4.2%
  • One-year total return: -9.9%

Realty Income (O), known by many income investors as "The Monthly Dividend Company," was on a roll right before the market turned south. The real estate investment trust (REIT) had returned 19% over the prior 12 months, which had driven its yield into the 3% range. However, the downturn hasn't been kind to Realty Income.

The company manages more than 6,500 properties in the U.S., Puerto Rico and the U.K. Most of Realty's tenants are retailers that are less susceptible to economic cycles than others, such as convenience, drug and dollar stores. Nonetheless, its positioning in some businesses, such as gyms and theaters, have put it in a somewhat vulnerable spot. Janney analysts note that Realty Income's top 20 tenants paid 82.5% of their contractual rent in the second quarter of 2020.

Those same analysts also call O "one of the safer common dividends in the retail REIT space." The REIT currently claims a streak of 91 consecutive quarterly increases to its monthly dividend.

High yield: Verizon Communications

  • Yield: 4.5%
  • Annual dividend: $2.46
  • Consecutive years of increases: 13
  • Five-year dividend growth rate: 2.3%
  • One-year total return: -1.7%

Verizon (VZ) is the largest wireless carrier in the U.S., commanding some 40% of the market, in terms of sales, for non-prepaid mobile-phone contracts. The company is investing heavily to expand its fiber network to serve wireless and business customers, and it is positioning itself to lead the industry in deploying 5G technology.

Credit Suisse has a Neutral rating on shares given low-single-digit earnings-growth estimates for this year, as well as potential for increased competition over time. Nonetheless, they concede, "The COVID crisis has highlighted the importance of connectivity, and despite competitor marketing efforts Verizon's network quality brand halo remains strong as ever."

A 4.5% yield helps sweeten the pot.

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