10 Dividend Stocks for '30-Year' Investors

NEW YORK (TheStreet) -- According to Benjamin Graham's margin of safety principal -- a measure of relative value between stocks and bonds -- buying an S&P 500 index fund poses less risk than purchasing long-term U.S. debt.

However, the dividend yield of the S&P 500 -- at 2.09% -- is scraping against all-time lows.

This puts income investors in a bind: Bonds with a strong credit rating don't yield much, exposing investors to a substantial amount of interest rate risk on the 10-30-year end of the curve.

Stocks -- when purchased through an index fund -- offer an earnings yield far in excess of U.S. Treasury bonds, but don't offer much in terms of absolute yield. That's acceptable for those seeking long-term appreciation, but troublesome for those in need of income.

One strategy that income-focused investors should consider is allocating their portfolios toward a blend of U.S. fixed income and carefully chosen dividend stocks.

Even though U.S. bond yields are low, if the country becomes tangled in a Japan-like quagmire, already-low yields could drop further. This scenario could offer capital appreciation opportunities and (at least some) recession protection.

Regarding stocks, there are several high-yield opportunities that -- with diversification -- offer reasonable opportunities for income, capital appreciation and safety.

The 10 stocks on the following pages have been screened for the following criteria:
  • Each stock yields more than a 30-year Treasury bond.
  • TheStreet Ratings recommends each stock as a buy.

As always, stock ratings should not be treated as gospel -- rather, use them as a starting point for your own research.

The stocks on the following pages are ranked by their dividend yield, in ascending order.

10. Illinois Tool Works

Illinois Tool Works ( ITW) is a manufacturer of a range of industrial products and equipment.

Dividend Yield: 3.40%

Rated "B (Buy)" by TheStreet Ratings: Illinois Tool Works' gross profit margin for the second quarter of its fiscal year 2011 is essentially unchanged when compared to the same period a year ago. The company has grown sales and net income during the past quarter when compared with the same quarter a year ago, however, it was unable to keep up with the growth of the average competitor within its industry.

Illinois Tool Works has average liquidity. Currently, the Quick Ratio is 1.08 which shows that technically this company has the ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year, indicating deteriorating cash flow.

During the same period, stockholders' equity ("net worth") has increased by 19.33% from the same quarter last year. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will face financial difficulties in the near future.

9. Genuine Parts Company

Genuine Parts Company ( GPC) is a service organization, which is engaged in the distribution of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials.

Dividend Yield: 3.43%

Rated "A- (Buy)" by TheStreet Ratings: Genuine Parts Company's P/E ratio indicates a discount compared to an average of 17.26 for the Distributors industry and a value on par with the S&P 500 average of 14.59.

For additional comparison, its price-to-book ratio of 2.87 indicates a premium versus the S&P 500 average of 1.96 and a premium versus the industry average of 2.72.

The current price-to-sales ratio is well below the S&P 500 average and is also below the industry average, indicating a discount. The valuation analysis reveals that, Genuine Parts Company seems to be trading at a discount to investment alternatives within the industry.

8. Mattel

Mattel ( MAT) designs, manufactures, and markets a variety of toy products worldwide through sales to its customers and directly to consumers.

Dividend Yield: 3.51%

Rated "A- (Buy)" by TheStreet Ratings: Mattel's gross profit margin for the second quarter of its fiscal year 2011 is essentially unchanged when compared to the same period a year ago. The company has grown its sales and net income during the past quarter when compared with the same quarter a year ago, and although its growth in net income has outpaced the industry average, its revenue growth has not.

Mattel has strong liquidity. Currently, the Quick Ratio is 1.59 which shows the ability to cover short-term cash needs. The company's liquidity has increased from the same period last year.

During the same period, stockholders' equity ("net worth") has remained virtually unchanged only decreasing by 1.59% from the same quarter last year. The key liquidity measurements indicate that the company is unlikely to face financial difficulties in the near future.

7. Eaton

Eaton ( ETN) is a power management company, which operates in: electrical, hydraulics, aerospace and automotive segments.

Dividend Yield: 3.54%

Rated "B (Buy)" by TheStreet Ratings: Eaton's gross profit margin for the second quarter of its fiscal year 2011 is essentially unchanged when compared to the same period a year ago. The company has grown its sales and net income during the past quarter when compared with the same quarter a year ago, and although its growth in net income has outpaced the industry average, its revenue growth has not.

Eaton has average liquidity. Currently, the Quick Ratio is 1.03 which shows that technically this company has the ability to cover short-term cash needs. The company's liquidity has increased from the same period last year.

During the same period, stockholders' equity ("net worth") has increased by 24.07% from the same quarter last year. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will face financial difficulties in the near future.

6. Johnson & Johnson

Johnson & Johnson ( JNJ) is a holding company, which is engaged in the research and development, manufacture and sale of a range of products in the health care field.

Dividend Yield: 3.59%

Rated "B (Buy)" by TheStreet Ratings: Johnson & Johnson's gross profit margin for the second quarter of its fiscal year 2011 is essentially unchanged when compared to the same period a year ago. Even though sales increased, the net income has decreased.

Johnson & Johnson has strong liquidity. Currently, the Quick Ratio is 1.94 which shows the ability to cover short-term cash needs. The company managed to increase its liquidity from the same period a year ago, despite already having strong liquidity to begin with. This would indicate improved cash flow.

During the same period, stockholders' equity ("net worth") has increased by 17.56% from the same quarter last year. The key liquidity measurements indicate that the company is unlikely to face financial difficulties in the near future.

5. DuPont

DuPont ( DD) operates globally and offers a range of products and services for markets including agriculture and food, building and construction, electronics and communications, general industrial, and transportation.

Dividend Yield: 3.70%

Rated "B+ (Buy)" by TheStreet Ratings: DuPont's gross profit margin for the second quarter of its fiscal year 2011 is essentially unchanged when compared to the same period a year ago. The company has grown its sales and net income during the past quarter when compared with the same quarter a year ago, and although its growth in net income has outpaced the industry average, its revenue growth has not.

DuPont has average liquidity. Currently, the Quick Ratio is 1.12 which shows that technically this company has the ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year.

At the same time, stockholders' equity ("net worth") has greatly increased by 36.22% from the same quarter last year. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will face financial difficulties in the near future.

4. Sysco

Sysco ( SYY) through its subsidiaries and divisions, is a distributor of food and related products mainly to the foodservice or 'food-away-from-home' industry.

Dividend Yield: 3.88%

Rated "B (Buy)" by TheStreet Ratings: Sysco's gross profit margin for the fourth quarter of its fiscal year 2011 is essentially unchanged when compared to the same period a year ago. Even though sales increased, the net income has decreased.

Sysco has weak liquidity. Currently, the Quick Ratio is 0.99 which shows a lack of ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year.

During the same period, stockholders' equity ("net worth") has increased by 22.93% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future.

3. Consolidated Edison

Consolidated Edison ( ED) through its subsidiaries, provides electric, gas, and steam utility services in the United States.

Dividend Yield: 4.30%

Rated "A (Buy)" by TheStreet Ratings:Consolidated Edison's P/E ratio indicates a discount compared to an average of 16.00 for the Multi-Utilities industry and a value on par with the S&P 500 average of 14.59.

For additional comparison, its price-to-book ratio of 1.43 indicates a discount versus the S&P 500 average of 1.96 and a discount versus the industry average of 1.73.

The current price-to-sales ratio is similar to the S&P 500 average, but it is below the industry average, indicating a discount. Upon assessment of these and other key valuation criteria, Consolidated Edison proves to trade at a discount to investment alternatives within the industry.

2. Avon Products

Avon Products ( AVP) is a global manufacturer and marketer of beauty and related products. Its product categories are Beauty, Fashion and Home.

Dividend Yield: 4.34%

Rated "B- (Buy)" by TheStreet Ratings: Avon Products' gross profit margin for the first quarter of its fiscal year 2011 is essentially unchanged when compared to the same period a year ago. The company has grown its sales and net income during the past quarter when compared with the same quarter a year ago, and although its growth in net income has outpaced the industry average, its revenue growth has not.

Avon Products has weak liquidity. Currently, the Quick Ratio is 0.63 which shows a lack of ability to cover short-term cash needs. The liquidity decreased from the same period a year ago, despite already having weak liquidity to begin with. This would indicate deteriorating cash flow.

At the same time, stockholders' equity ("net worth") has greatly increased by 46.55% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future.

1. Pfizer

Pfizer ( PFE) is a research-based global pharmaceutical company which discovers, develops, manufactures and markets prescription medicines for humans and animals.

Dividend Yield: 4.38%

Rated "B (Buy)" by TheStreet Ratings: Pfizer's gross profit margin for the second quarter of its fiscal year 2011 is essentially unchanged when compared to the same period a year ago. Even though sales decreased, the net income has increased, representing an increase to the bottom line.

Pfizer has average liquidity. Currently, the Quick Ratio is 1.35 which shows that technically this company has the ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year.

At the same time, stockholders' equity ("net worth") has remained virtually unchanged only increasing by 2.36% from the same quarter last year. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will face financial difficulties in the near future.

>>To see these stocks in action, visit the 10 Dividend Stocks for '30-Year' Investors portfolio on Stockpickr.

-- Written by a member of TheStreet Ratings in New York City

This article was written by a staff member of TheStreet.com Ratings.

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