Dividend-paying stocks are often appealing to investors, especially ones from companies that have consistently increased their dividends.
While all stocks that give dividends are not good additions to your portfolio, dividends have been "responsible for about 44% of the S&P 500's returns over the past 80 years," said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa.
"One need look no further than stocks that have increased their dividends for many consecutive years to find good candidates," he said. "Some refer to these as 'ruler stocks,' because if you laid down a ruler on a graph of dividends over time, the ruler would point to the northeast and most of the points would be very close to the ruler."
Companies with dividends tend to attract a large percentage of investors, but the noteworthy companies are ones with a large amount of free cashflow, which demonstrate a "good harbinger" of future earnings and the ability to continue to raise dividends, said Mark Spellman, a portfolio manager at Alpine Funds, a Purchase, N.Y.-based asset manager.
The three highest yielding stocks that have consistently raised dividends include Leggett & Platt (LEG - Get Report) , Cardinal Health (CAH - Get Report) and VF Corp (VFC - Get Report) , said Matthew Tuttle, the portfolio manager of Tuttle Tactical Management U.S. Core ETF (TUTT) .
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While purchasing shares of dividend yielding stocks is a safe bet, some stocks such as General Electric (GE - Get Report) and Exxon Mobil (XOM - Get Report) are underperforming recently. It remains unclear whether GE's new CEO John Flannery plans to maintain the industrial giant's traditional quarterly dividend of 4%.
"I like that GE has cash, but I have zero confidence in their new business model," said Patrick Morris, CEO of New York-based HAGIN Investment Management. "I don't think they will let the dividend go anytime in the next five years, but the offset might be chronic underperformance in the equity. That said, the stock has performed horribly so we might be at an intermediate term buying opportunity."
TheStreet has a compiled a list of 12 stocks with attractive dividends.
Although Exxon Mobil (XOM - Get Report) remains an energy behemoth and the company's future appears solid, crude oil is "acting better and obviously the company is best in class, so the business risk is low," Morris said. "I think there is good upside in the energy sector at this level. I'm hopeful that WTI holds above $50. We've seen the $50 mark several times and there is real resistance at $49.99-50.01 since there is still a lot of bearish sentiment out there."
While Ron McCoy, a portfolio manager of the LOWS Strategy with Covestor, the online investing company, and CEO of Freedom Capital Advisors in Winter Garden, Fla., has been purchasing Exxon Mobil at its current levels, he cautions investors, because the stock could dip even further.
"Investors should also realize that when this market finally decides to correct, they should be careful about going 'all in' just because its cheap," he said. "We believe over the long term, clients will do well at Exxon Mobil's current prices."
Pharmaceutical giant Glaxosmithkline (GSK - Get Report) is trading at less than 14 times forward earnings and also gives investors some foreign exposure, McCoy said. The company also has a nice 5.7% dividend yield.
"The stock has been down for several years and at these levels, it appears inexpensive," he said.
For the past decade, Altria's (MO - Get Report) volume has decreased by 35%, but its product prices (excluding local taxes) have increased by 92% to allow its revenue to increase by 25%, said K.C. Ma, a CFA and director of the Roland George investments program at Stetson University in Deland, Fla.
During the same time period, its dividend per share has nearly doubled from $1.25 to $2.44 and its share prices have quadrupled from $16 to $62.
"Amid the FDA's recent announcement of its 'war on addiction,' Altria's shares plummeted 16%," he said. "However, given the FDA's long-term 'continuum of risk,' neither Altria's future volume decreases nor the losses in pricing power warrant the 16% stock price drop."
Even at this depressed price level, Altria is delivering a 4% dividend yield with a near double-digit future dividend growth rate of 8% to 0%.
The company's subsidiaries include Philip Morris USA, which sells cigarettes and Ste. Michelle Wine Estates Ltd., which sells wine and smokeless tobacco products.
A non-traditional choice is Gilead Sciences (GILD - Get Report) , which has a dividend yield of 2.53%. Gilead Sciences has been on a "roller coaster ride" over the last year, said Bill DeShurko, president of 401 Advisor, a registered investment advisory in Centerville, Ohio, who is long on Gilead in client accounts.
The company's flagship product, Harvoni, is used in treating hepatitis C; however, between campaign rhetoric over pharmaceutical price gouging and a declining hepatitis market, the company's stock has plummeted. Still, the company recently purchased Kite Pharma in an all cash deal.
"Kite gives Gilead Sciences an entry product into the oncology market and the company still has a significant cash hoard, strong free cash flow and a promising pipeline," DeShurko said. "The stock has rallied off its low, but I feel it is still 25% undervalued with a very safe and potentially increasing dividend."
The company is in transition from being a hardware only seller to becoming a hardware, software and cloud business, he said.
"We've seen this play out with Microsoft and Oracle in the past," Spellman said. "It could be that old line tech companies transition themselves to higher growth.
AT&T (T - Get Report) is in the process of buying Time Warner for $85.4 billion, but the telecom provides stable free cash flow and a steady, 5.03% yield, more than twice what the 10-year U.S. Treasury yield currently. The addition of Time Warner's brands such as HBO and Warner Bros. could be an advantage if a recession occurs since media content tends to outperform during market downturns.
"There is great long-term value in AT&T and its dividend is pretty nice," said McCoy who owns the stock.
AT&T will be the beneficiary of the new iPhone cycle as many consumers will upgrade their current smartphones. If Sprint (S - Get Report) and T-Mobile (TMUS - Get Report) merge in the future, there will be less competition in the telecom market and also be and advantage, said Spellman.
Enterprise Products Partners (EPD - Get Report) has a current yield of 6.4% investors are likely to get "rock solid consistent distribution growth of 5% to 6% per year," said Charles Lewis Sizemore, a portfolio manager for Interactive Brokers Asset Management, the online investing company based in Boston, which holds the stock in his dividend growth portfolio.
"That's not 'get rich quick' money, but its stable and dependable growth well in excess of the rate of inflation," he said.
"Management has promised to more than double the payout over the next two to three years," he said. "
I don't know of too many other places you would potentially have that kind of dividend growth without taking a lot more risk to get it. I consider Kinder Morgan very safe at current prices and current leverage levels."
Johnson and Johnson JNJ, which operates in the medical and consumer products fields, has steady consumer demand despite the underlying economic cycle. As a result, it has increased its dividend for 54 consecutive years, said Johnson.
"Johnson and Johnson is one of only two companies other than Microsoft to have a AAA credit rating by the major credit rating agencies," he said. "It is a solid bet for the future for a conservative investor since it is currently selling close to its 52-week high at $133 per share. It sells an above market price to earnings ratio 22.5 and is up 14.6% over the past year and with a current dividend yield of 2.5%, it exceeds the 10-year government bond yield."
Genuine Parts Corporation (GPC - Get Report) has increased its dividend for 61 consecutive years and produces replacement auto parts, a business which tends to be recession proof. The company also has global presence as it distributes automotive replacement parts in the U.S., Canada, Mexico and Australasia.
"In difficult economic times, people tend to keep their older automobiles longer and delay purchasing new cars," Johnson said. "It is currently selling for $86 per share and is closer to its 52-week low than its 52-week high and selling at a below market price to earnings ratio of 18.7 and has lost 13% in value over the past year. It has a current dividend yield of 3.12%, which exceeds the 10-year government bond yield."
Nestle (NSRGY) has a dividend yield of 2.74% and while its shares at $84 are not the cheapest, the company generates long-term stable growth and has a good track record for executing its plans, said Jeremy Bryan, a portfolio manager at Gradient Investments, a Minnesota-based RIA which provides portfolio strategies to investment advisors and investors.
"The premium is worth it considering that it's among the highest-quality companies in the world," he said.
Lowe's (LOW - Get Report) , the home improvement company, generates a larger percentage of its sales in appliances compared to its competitor, Home Depot (HD - Get Report) and will see sales increase as a result of the long-term damage inflicted by both Hurricanes Harvey and Irma.
The dividend yield is 2.11%, but investors will see larger gains in Lowe's stock in the next 12 to 18 months compared to Home Depot, said Spellman.
"Investors searching for yield or yield's sake is not a good strategy and need to dig down for quality and determine if the company is going to be able to raise it," he said.