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The Kiplinger Dividend 15: Our Favorite Dividend-Paying Stocks

Ryan Ermey, Associate Editor, Kiplinger's Personal Finance

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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 3.4%, on average, compared with a 1.9% yield for Standard & Poor's 500-stock index and a 1.7% yield for the 10-year Treasury bond. What's more, over the past year, our list has slathered on the gravy, too, returning 13.6%, on average, counting dividends and price appreciation, compared with a 4.3% return for the S&P 500.

Big gains don't come without some strings attached. Like many stocks that have ridden this record-long bull market, some of the names on our list appear to be richly valued now. And although dividends buttress returns when a stock's price slides, pricey stocks could take a big hit in the event of a stock market plunge. Perhaps more salient for dividend investors, major boosts in the share price diminish a stock's yield, as is the case with Blackstone Group and Realty Income--two stocks originally chosen for our list because, among other things, they historically provided yields above 4%. Although they've slipped below that bar, we're not yet ready to jettison them for performing too well, and we believe that their yields can return to historical averages. We're keeping an eye on them, but we're making no changes to the list at present.

The Dividend 15 are divided 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.

SEE ALSO: 25 Dividend Stocks That Analysts Love the Most

Dividend Stalwart: 3M

Courtesy 3M

Yield: 3.5%

Annual dividend: $5.76

Consecutive years of increases: 60

Five-year dividend growth rate: 11.0%

One-year total return: -19.3%

3M (MMM, $164) boosted its payout by 5.9% this year, surpassing the requirement by a not-so-slim margin of 40 years. The firm, which makes an array of products involving chemical coatings, sealants and ad­hesives, has posted disappointing earnings of late, and the stock has surrendered 20% over the past 12 months. Slowdowns in sales of consumer electronics and autos were partly to blame, says Mairs & Power Growth fund manager Kevin Earley. 3M is used to withstanding cyclical challenges like these, he says, and is restructuring to cut costs and expand margins. He expects the company to continue to raise its payout modestly as it gets earnings back on track.

SEE ALSO: The 15 Best Recession-Resistant Stocks to Buy

Dividend Stalwart: Air Products & Chemicals

Yield: 2.1%

Annual dividend: $4.64

Consecutive years of increases: 37

Five-year dividend growth rate: 11.9%

One-year total return: 35.6%

Air Products & Chemicals (APD, $222) 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.

SEE ALSO: 15 Dividend Kings for Decades of Dividend Growth

Dividend Stalwart: Emerson Electric

Courtesy Emerson Electric

Yield: 2.9%

Annual dividend: $1.96

Consecutive years of increases: 62

Five-year dividend growth rate: 2.7%

One-year total return: -10.1%

Emerson Electric (EMR, $67) 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 has yet to fully bounce back from a late-2018 swoon, but Emerson should continue to boost earnings (which bodes well for the dividend). CFRA expects a 9.7% bump in profits for the fiscal year that ends in September 2020, on top of an expected 6.9% gain for fiscal 2019.

SEE ALSO: 20 Dividend Stocks to Fund 20 Years of Retirement

Dividend Stalwart: Exxon Mobil

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Yield: 4.9%

Annual dividend: $3.48

Consecutive years of increases: 37

Five-year dividend growth rate: 4.8%

One-year total return: -13.0%

While competitors are scaling back capital spending, ExxonMobil (XOM, $71) is investing heavily in new operations as part of an effort to double earnings and cash flow by 2025. It's a risky proposition, given that the oil giant's business is susceptible to swings in energy prices. But Morningstar analysts say the firm can cover spending requirements and dividends even if oil prices fall to $40 a barrel, from $54 a barrel recently. The shares currently yield a plump 4.9%.

SEE ALSO: The Berkshire Hathaway Portfolio: All 47 Buffett Stocks Explained

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.

SEE ALSO: The 25 Best Low-Fee Mutual Funds You Can Buy

Dividend Stalwart: Procter & Gamble

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Yield: 2.4%

Annual dividend: $2.98

Consecutive years of increases: 63

Five-year dividend growth rate: 3.0%

One-year total return: 53.0%

An astonishing 33 of Procter & Gamble's (PG, $124) 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 53% return over the past 12 months has eaten into the yield, which now stands at 2.4%. But P&G should continue its 63-year streak of annual dividend increases on the back of steadily growing earnings.

SEE ALSO: 10 High-Quality, High-Growth Stocks to Buy

Dividend Stalwart: Walmart

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Yield: 1.8%

Annual dividend: $2.12

Consecutive years of increases: 45

Five-year dividend growth rate: 2.0%

One-year total return: 28.6%

Walmart (WMT, $119) has found ways to compete in the face of changing consumer preferences and the growth of online retail. The retailer announced plans in May to offer free next-day shipping on online orders of $35 or more, a move that should boost e-commerce sales. Wall Street analysts don't expect much earnings growth in the fiscal year that ends in January 2020. But factoring in the firm's glut of cash, Walmart is a safe bet to continue its 45-year tradition of dividend hikes.

SEE ALSO: 101 Best Dividend Stocks to Buy for 2019 and Beyond

Dividend Grower: AbbVie

Courtesy AbbVie

Yield: 5.7%

Annual dividend: $4.28

Consecutive years of increases: 6

Five-year dividend growth rate: 20.6%

One-year total return: -15.5%

Pharmaceutical firm AbbVie (ABBV, $76) has its challenges. For one, it's set to lose exclusivity on its blockbuster immunology drug Humira in 2023. In a bid to diversify its product lineup, in June the firm announced plans to acquire fellow drugmaker Allergan. Investors sent shares plummeting 16% following the news. They've since warmed to the union, which would bolster AbbVie's offerings with lucrative treatments such as Botox, and the stock has trended higher. Execs at AbbVie say the deal allows the firm to boost operating cash flow and maintain its dividend-growth policy.

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Dividend Grower: Home Depot

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Yield: 2.3%

Annual dividend: $5.44

Consecutive years of increases: 10

Five-year dividend growth rate: 23.7%

One-year total return: 14.5%

Shares of Home Depot (HD, $232) trade near all-time highs, having returned an annualized 22.1% over the past five years. Over that period, the home-improvement giant has boosted its dividend even faster, at an average annual rate of 23.7%. The shares trade at 22 times estimated year-ahead earnings, compared with a multiple of 17 for the S&P 500. Analysts at investment research firm Value Line don't expect further price appreciation over the near term, but they forecast a 17% boost to the dividend in 2020.

SEE ALSO: 11 Great Stocks to Buy and Hold for the Next Decade

Dividend Grower: Lockheed Martin

Courtesy Lockheed Martin

Yield: 2.5%

Annual dividend: $9.60

Consecutive years of increases: 18

Five-year dividend growth rate: 9.9%

One-year total return: 15.3%

Lockheed Martin (LMT, $390) 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.

SEE ALSO: "Healthy" Dividend Aristocrats: 6 Great Health-Care Dividends

Dividend Grower: Texas Instruments

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Yield: 2.4%

Annual dividend: $3.08

Consecutive years of increases: 15

Five-year dividend growth rate: 20.8%

One-year total return: 22.6%

Texas Instruments (TXN, $129) 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. The firm earmarks more than 10% of sales for research and development, and TI could see an explosion of new applications in the Internet of Things, with more internet-connected devices in need of microchips. The company has hiked its dividend by 20.8% per year, on average, over the past five years.

SEE ALSO: 12 Tech Stocks That Wall Street Loves the Most

High Yield: Blackstone Group

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Yield: 3.9%

Annual dividend: $1.90

Consecutive years of increases: 0

Five-year dividend growth rate: -2.7%

One-year total return: 33.7%

Asset manager Blackstone Group (BX, $49) has $545 billion in assets under management. The firm's quarterly dividend is variable and depends on what the company earns. As of the most recent quarter, and after a huge run-up in the share price, the stock yields 3.9%, but it has averaged a 7.4% yield over the past five years. The firm recently reclassified itself as a corporation, rather than a master limited partnership. That means that investors will no longer receive a K-1 form, which can complicate taxes. The downside is that Blackstone can now scale back its dividend policy, although execs say they don't intend to do so.

SEE ALSO: The 25 Best Mutual Funds of All Time

High Yield: Enterprise Products Partners, LP

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Yield: 6.2%

Annual distribution: $1.76*

Consecutive years of increases: 21

Five-year distribution growth rate: 4.1%

One-year total return: 5.6%

Enterprise Product Partners (EPD, $29) 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. Though Enterprise yields less and increases its distribution more slowly than its peers, its payout is more securely funded, with enough available cash to cover 145% of its 2019 distribution. At recent prices, the stock yields 6.2%, the highest ratio on our list.

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

SEE ALSO: The Smart Money Is Looking for Value Stocks

High Yield: Realty Income

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Yield: 3.6%

Annual dividend: $2.72

Consecutive years of increases: 24

Five-year dividend growth rate: 4.4%

One-year total return: 39.5%

Realty Income (O, $77) has been on a roll. The real estate investment trust returned 39.5% over the past 12 months, driving the firm's dividend yield down to 3.6%--well below its 4.4% five-year average. The company, which pays a dividend every month, manages nearly 6,000 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. CFRA analysts expect the firm to boost revenues and earnings in 2019 and 2020 through rent increases and acquisitions. The dividend is likely to go up, too: Realty Income has increased its payout for 88 consecutive quarters.

SEE ALSO: 3 Preferred Stock ETFs for High, Stable Dividends

High Yield: Verizon Communications

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Yield: 4.1%

Annual dividend: $2.46

Consecutive years of increases: 13

Five-year dividend growth rate: 2.3%

One-year total return: 17.6%

Verizon (VZ, $60) 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. Though earnings growth for the next few years is expected to be tepid, Value Line analysts are optimistic about share-price gains through the early years of the coming decade and venture that Verizon "could be a darling of the income-seeking set" thanks to its juicy 4.1% yield.

SEE ALSO: The 9 Highest-Yielding Warren Buffett Dividend Stocks


Copyright 2019 The Kiplinger Washington Editors