By Ryan Fuhrmann

NEW YORK ( TheStreet ) -- Wal-Mart ( WMT), Abbott Labs ( ABT), Kimberly-Clark ( KMB), Coca-Cola ( KO) and Eli Lilly ( LLY) are five companies in the S&P 500 with the best dividend growth and earnings prospects.

Dividend-paying stocks are appealing because they have a track record of beating the broader stock market. Focusing on the most undervalued names of the S&P's so-called dividend aristocrats means investing in the most undervalued companies.

>>Also: 21 S&P 500 Stocks Up More Than 40%

The companies mentioned here also offer downside protection, given their products can be considered recession-resistant. For those particularly inclined to high dividend payments, Kimberly-Clark and Eli Lilly stand out from the rest.

Wal-Mart (WMT)

Business: World's Largest Retailer

Current P/E ratio: 13.9

Current dividend yield: 2.3%

Walmart
I recently concluded that Wal-Mart is the one blue-chip that every investor should own, which stems from the fact that it is one of the safest investments out there (Read The One Blue-Chip Stock Every Investor Should Own). First, it is using its impressive profit generation in the United States to fund overseas growth. This strategy has allowed sales to grow at least +10% annually during the past decade.


Sales should grow in the high single digits going forward, but cost containment and other productivity enhancements should push profits up in the double digits each year going forward. Wal-Mart is also an ideal pick for investors worried about a double-dip recession or a failure of the global economy to recover fully from the credit crisis. Given its additional focus on dividends and ability to boost the payout over time, this stock pick is hard to argue against.

Abbott Labs (ABT)

Business: Pharmaceuticals

Current P/E ratio: 15.5

Current Dividend Yield: 3.3%

Abbott is a healthcare bellwether and has a globally diversified business across a number of different product categories. In addition to pharmaceutical sales, it sells medical devices and consumer products, such as Similac baby formula. Abbot's sights are also set overseas, and it recently announced a deal that will make it one of the largest healthcare firms in India. A low P/E, high and rising dividend yield, and double-digit growth prospects over the long haul make this an undervalued stock at current prices.

Kimberly-Clark(KMB)

Business: Consumer Goods

Current P/E ratio: 14.0

Current Dividend Yield: 4.1%

Kimberly-Clark used to qualify as a stodgy consumer goods firm, but has become religious on controlling costs. In the past three years, it has been able to leverage modest sales growth of under 4% per year into double-digit earnings increases that have averaged nearly 12% annually. A 4.1% dividend yield also makes it one of the most generous payers out of all the dividend aristocrats. Dividend stability and improved profit growth mean Kimberly-Clark also stands out as one of the most undervalued names in the S&P 500.

Coca-Cola (KO)

Business: Beverages

Current P/E ratio: 18.7

Current Dividend Yield: 3.0%

U.S. consumers have wised up to the health drawbacks of drinking Coke's flagship sugar water, but the namesake beverage is still growing like gangbusters overseas. Overall though, Coke is dependent on a dizzying array of other products and now boasts more than 3,300 beverages that it sells globally. Growth prospects have picked up domestically on the popularity of Coke Zero, and profits have grown almost 12% in the past decade.

Eli Lilly (LLY)

Business: Pharmaceuticals

Current P/E ratio: 9.1

Current Dividend Yield: 5.4%

Eli Lilly has severe top-line issues to deal with in the next few years, given nearly 60% of its drug sales are subject to patent expirations during the next seven years. However, this downside is more than reflected in the stock price and is a key reason I recently pegged the stock as big pharma's most undervalued stock.(Read Big Pharma's Most Undervalued Stock.) Better yet, management has committed to keeping the current dividend yield, which is about as high as you'll find in the S&P 500 today. This should keep the stock as a dividend aristocrat for some time, and investors have a chance for big gains by picking up the shares.

>To see these stocks in action, visit the 5 Most Undervalued S&P Stocks portfolio on Stockpickr.

This article originally appeared on StreetAuthority. To read more articles from Ryan Fuhrmann on StreetAuthority, visit this link.

Disclosure: At the time of publication, Ryan Fuhrmann owned positions in ABT.



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This article originally appeared on StreetAuthority, founded in 2001 by industry veterans Lou Betancourt and Paul Tracy. StreetAuthority is a financial research and publishing company with offices in Austin, Texas and Gaithersburg, Maryland. The company aims to help individual investors earn above-average profits by providing a source of independent and unbiased investing ideas.

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