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The Kiplinger Dividend 15: Our Favorite Dividend-Paying Stocks

John Waggoner, Senior Associate Editor, Kiplinger's Personal Finance

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The Kiplinger Dividend 15, the list of our favorite dividend-paying stocks, doled out plenty of payout love in its first year, with an average yield of 3.7%.

To make it into our lineup, dividend stocks had to first beat the 2% average yield of the Standard & Poor's 500-stock index. We then looked for firms that are leaders in their industry and that have solid prospects for expanding their sales and profits, while also generating enough cash to pay investors. And we aim to avoid dividend traps -- stocks with high yields but weak underlying businesses and poor prospects.

We've recently made a change to the list, pulling CVS Health (CVS). Although the stock has performed well, it broke its streak of dividend increases, which was one reason we recommended it. We'll introduce its replacement in a minute.

Here is a look at the updated Kiplinger Dividend 15, including any new information that may be important. We divide the list into three groups, for their dividend stability, briskly growing payouts or high yields. Find a dividend stock that suits your needs, or select a mix.

SEE ALSO: 57 Best Dividend Stocks You Can Count On in 2019

Dividend Stalwart: 3M

Courtesy 3M

Yield: 2.8%

Annual dividend: $5.76

Consecutive years of increases: 61

Five-year dividend growth rate: 11.0%

One-year total return: -8.7%

A 61-year record of increasing dividends looks poised to continue at 3M (MMM, $209) despite a 19% loss in 2018. According to analysts at research firm CFRA, 3M's investments in research and development have dampened earnings growth in 2018, although it should be positive in the long term. Analysts as a whole project profit growth both this year and next.

Given the safety of 3M's dividend, its thousands of patents and its commitment to research, the stock still deserves its place in the Dividend 15.

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Dividend Stalwart: Air Products & Chemicals

Yield: 2.7%

Annual dividend: $4.64

Consecutive years of increases: 37

Five-year dividend growth rate: 10.3%

One-year total return: 9.1%

Air Products & Chemicals (APD, $174) 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 company long-term stability.

The firm's spending on plant and equipment should bear fruit in future years, especially in Europe, the Middle East and Africa, where Air Products has seen 24% sales growth over the past 12 months. The company raised its yearly payout nearly 16% in April 2018.

SEE ALSO: 18 Dividend Aristocrats That Have Gone on Deep Discount

Dividend Stalwart: Emerson Electric

Courtesy Emerson Electric

Yield: 2.9%

Annual dividend: $1.96

Consecutive years of increases: 62

Five-year dividend growth rate: 2.6%

One-year total return: -1.7%

Emerson Electric (EMR, $68) was established in St. Louis in 1890, but the company isn't rooted in the past. Automation is the future, and Emerson's hardware and software help make production more efficient for industries ranging from oil and gas to automobiles. Emerson also has a big group of well-known commercial and consumer products, including heating and air conditioning units, lighting and electrical materials.

Analysts expect earnings growth of 17.4% for the fiscal year that ends in September 2019, and 15.4% for the following year -- enough to keep a 62-year record of dividend hikes on track.

SEE ALSO: The 25 Biggest U.S. IPOs of All Time

Dividend Stalwart: Exxon Mobil

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Yield: 4.2%

Annual dividend: $3.28

Consecutive years of increases: 36

Five-year dividend growth rate: 5.4%

One-year total return: 6.3%

You might associate Exxon Mobil (XOM, $78) with gasoline, but it's also a reliable engine of dividend growth.

The world's largest publicly traded oil and gas company has averaged a 6.3% dividend hike for the past 35 years, even through lean times for the energy sector. Aided by rising oil prices this year, Exxon Mobil generated cash flow from operations of $36 billion in 2018, up from $30 billion a year earlier. The company has invested heavily in the Permian oil basin, particularly in pipelines there. Despite big capital outlays, Exxon Mobil remains committed to its generous dividend.

SEE ALSO: The "Accelerators": 13 Dividend Stocks With Rapidly Growing Payouts

Dividend Stalwart: Johnson & Johnson

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Yield: 2.6%

Annual dividend: $3.60

Consecutive years of increases: 56

Five-year dividend growth rate: 6.4%

One-year total return: 6.6%

Like all drug companies, pharmaceutical powerhouse Johnson & Johnson (JNJ, $136) comes with risks -- in this case, legal battles involving its talcum powder and surgical mesh products. Nevertheless, the company is so broadly diversified that it's not reliant on one drug or even one product segment. "We see solid pharmaceutical growth, while consumer products and medical devices continue to rebound and aid sales growth," say CFRA analysts.

The company's free cash flow (cash left over after spending to maintain and expand the business) covers its dividend by a wide margin, meaning J&J's 56-year streak of raising dividends is unlikely to end soon.

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Dividend Stalwart: Procter & Gamble

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Yield: 2.9%

Annual dividend: $2.87

Consecutive years of increases: 62

Five-year dividend growth rate: 3.6%

One-year total return: 23.0%

You've probably used something from Procter & Gamble (PG, $98) today, whether it's laundry detergent (Tide), razors (Gillette) or cough medicine (Vicks). If you're a shareholder, you no doubt appreciate P&G's dividend record: It has paid dividends for 128 consecutive years and raised them for the past 62.

Despite a strong stock market, however, this stock has languished. P&G has been challenged by growing competition and rising materials prices. But Morningstar sector director Erin Lash argues that the firm's efforts to reduce costs and increase prices make it a good buy. The stock is cheap now relative to earnings and sports a 2.9% yield. "We think investors would be wise to stock up," Lash says.

SEE ALSO: Dividend Aristocrats to Earn Income All Year

Dividend Stalwart: Walmart

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Yield: 2.1%

Annual dividend: $2.12

Consecutive years of increases: 45

Five-year dividend growth rate: 2.0%

One-year total return: -1.1%

Walmart (WMT, $100) is best known for its vast number of outlets peddling low-cost consumer goods. But Walmart also is making big strides in e-commerce, including buying a 77% stake in Indian e-commerce giant Flipkart in August. Walmart's U.S. e-commerce sales soared 40% in the fiscal year that ended Jan. 31, according to Zacks Investment Research. The $16 billion Flipkart deal will slow earnings in the short term, but Walmart has plenty of cash to pay -- and increase -- dividends.

SEE ALSO: 16 High-Yielding Monthly Dividend Payers

Dividend Grower: AbbVie

Courtesy AbbVie

Yield: 5.3%

Annual dividend: $4.28

Consecutive years of increases: 6

Five-year dividend growth rate: 21.7%

One-year total return: -26.2%

AbbVie (ABBV, $81), a pharmaceutical company with several blockbuster patents and a strong group of new products in the pipeline, is the newest member of the Kiplinger Dividend 15 and the replacement for CVS.

AbbVie expects sales of Humira -- used to treat rheumatoid arthritis, psoriasis and Crohn's disease -- to approach $21 billion by 2020. The firm is developing a drug to treat glioblastoma, an aggressive form of brain cancer, and another to treat multiple myeloma, a blood cancer.

AbbVie has paid dividends only since 2013, when it was spun off from Abbott Laboratories. Since then, the payout has grown at a five-year annualized rate of nearly 18%, with a 40% bump in the annual payout in 2018.

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Dividend Grower: Home Depot

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Yield: 2.1%

Annual dividend: $4.12

Consecutive years of increases: 10

Five-year dividend growth rate: 21.4%

One-year total return: 6.1%

You may have noticed that the parking lot at Home Depot (HD, $192) is nearly always jammed on weekends, and so have investors.

Home Depot was running hot for quite some time, through October, but like much of the rest of the market, the fourth-quarter downturn cooled HD off. Shares now trade at 17.5 times estimated earnings of $11.05 for the fiscal year ended January 2021. That is only slightly higher than the forward P/E on the S&P 500, based on calendar 2019 estimates. A longer-term uptrend has pushed Home Depot's dividend yield down to 2.1%. Nevertheless, the firm keeps hiking dividends; it raised its quarterly payout nearly 16% in 2018, to $1.03 per share, on top of 2017's 29% hike. (Editor's note: In late February 2019, Home Depot announced a 32% hike in the payout to $1.36 per share, starting with the dividend to be paid out March 28.)

SEE ALSO: 25 Dividend Stocks You Can Buy and Hold Forever

Dividend Grower: Lockheed Martin

Courtesy Lockheed Martin

Yield: 2.9%

Annual dividend: $8.80

Consecutive years of increases: 17

Five-year dividend growth rate: 10.6%

One-year total return: -12.6%

Lockheed Martin (LMT, $307), the largest military contractor in the world and the maker of the $89 million F-35 fighter jet, is benefiting from a surge in U.S. military spending. The company has delivered about 300 of the next-generation fighters since production began in 2006, and it signed a contract in September to deliver another 141. Lockheed Martin's large array of defense products, including Sikorsky helicopters, makes it a remarkably stable business with plenty of runway to continue healthy dividend boosts.

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Dividend Grower: Texas Instruments

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Yield: 2.9%

Annual dividend: $3.08

Consecutive years of increases: 15

Five-year dividend growth rate: 20.7%

One-year total return: 4.8%

The tech sector is second only to financial services in the dollar amount of dividends it pays, and Texas Instruments (TXN, $108) is a good example, raising its dividend 29% in 2017 and 17% in 2018. The company is the world's largest producer of analog microchips, which convert sounds and other real-world signals into digital inputs. Although the chip business is highly competitive, Texas Instruments' chips are hard to switch out once they are embedded in a product's design.

The company is seeing fast sales growth in the automotive market. And its chips inform a growing number of machines and devices that make up the Internet of Things -- the web of products, from refrigerators to earth movers, connected to the internet.

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High Yield: Blackstone Group

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Yield: 7.0%

Annual dividend: $2.42

Consecutive years of increases: 0

Five-year dividend growth rate: 9.9%

One-year total return: 2.5%

Blackstone Group (BX, $33) had its returns clipped during the fourth quarter, but a big dividend payment helps turn a roughly 4% 12-month loss into a nearly 3% positive total return. The asset manager has four divisions, focused on funds that invest in private companies, funds that invest in real estate, hedge funds and fixed-income funds. From 2014 through 2018, Blackstone's fee-earning assets under management have grown at an annual rate of 12.2%, to $342.5 billion.

Its quarterly payout is variable and depends on what the firm earned that quarter. In 2018, the payout ranged from 85 cents per share to 35 cents per share.

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High Yield: Enterprise Products Partners, LP

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Yield: 6.2%

Annual distribution: $1.74*

Consecutive years of increases: 20

Five-year distribution growth rate: 4.4%

One-year total return: 11.7%

Enterprise Products Partners, LP (EPD, $28) is a master limited partnership that provides pipelines, processing and storage for oil and gas. Enterprise has a 50,000-mile pipeline network that connects to every major U.S. shale play, and it is seeing rising demand for liquid natural gas from both chemical and refinery businesses. Pipeline companies typically enter into long-term agreements with customers. Poaching by competitors is rare because it's hard to build another pipeline in an area where one already exists. Enterprise fits well into our high-yield category, with a 6.2% yield. Note: MLPs issue K-1 forms that can complicate your tax filings.

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

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High Yield: Realty Income

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Yield: 3.9%

Annual dividend: $2.71

Consecutive years of increases: 25

Five-year dividend growth rate: 4.4%

One-year total return: 47.2%

Realty Income (O, $70) was in the doghouse early in 2018 but has exploded since then. Despite an 11% drop from the start of 2018 through April, the shares have managed a 42% gain over the past year; including dividends, it has returned 49%.

The real estate investment trust (REIT), which pays dividends monthly, has a portfolio of properties that tend to grow slowly, but steadily, in value. With 5,483 properties under long-term leases in 49 states and Puerto Rico, Realty Income has broad diversification. Top tenants by rental revenue are Walgreens (WBA), FedEx (FDX) and Dollar General (DG). Since 1996, overall occupancy hasn't dipped below 96.6%.

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High Yield: Verizon Communications

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Yield: 4.4%

Annual dividend: $2.41

Consecutive years of increases: 12

Five-year dividend growth rate: 2.6%

One-year total return: 15.7%

Verizon Communications (VZ, $55) is North America's largest wireless carrier in a hotly competitive market. A big investment in its Fios network should start to pay off over the next few years.

Verizon took a $4.6 billion writedown on Oath, its online advertising and content arm, in December. The division was rebranded Verizon Media Group. Still, the shares yield a plump 4.4%.

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Copyright 2018-2019 The Kiplinger Washington Editors