5 Dividend Stocks With Rising Yields for 2012

BOSTON ( TheStreet) -- It seems that almost every investment manager is singing the praises of dividend-paying stocks for safety during tough economic times. But Rick Platte goes a step further and says investors ought to find companies that are increasing payouts.

Platte, co-portfolio manager of the Ave Maria Rising Dividend Fund ( AVEDX), says rising income will help offset inflation in the coming year. The 10-year U.S. Treasury is yielding only 2%, while the latest reading on inflation is a seasonally unadjusted 3.5%, meaning investors are losing money on government bonds.

Picking dividend stocks "looks pretty darn attractive" on an absolute basis versus bonds, Platte says. With Europe and the U.S. failing to effectively manage a swelling debt crisis and a U.S. presidential election on tap, Platte says it'll be "more of the same old, same old." With slow growth in the cards, Platte heralds the benefits of having a diversified portfolio of companies committed to raising their dividends, such as 3M ( MMM) and Lowe's ( LOW).

The reason for the fund's success is simple: Platte and his team searches for companies with capable management that have a history of increasing dividend payments over time. When there are bad days in the stock market -- last week, for example -- Platte takes comfort in his picks.

"The reason I don't wake up in a cold sweat is because of the types of companies we're invested in," Platte says. "I don't know what is going to happen next year. Things will probably keep chugging along, but it won't feel like a traditional recovery. We're in a new reality. But these companies will continue to grind out, increasing earnings and dividends. It's this type of consistency that the portfolio is built around."

Those steady eddies have enabled the Ave Maria Rising Dividend Fund to outperform the benchmark S&P 500 Index over nearly every time period since the fund's inception in 2005. A hypothetical $10,000 invested in the fund in May 2005 would be worth $14,200 today, while the same amount in an S&P 500 index fund would be worth $11,700.

Because of the rising-dividend mandate, the fund tends to outperform in bear markets. For example, the fund fell 22.8% in 2008 as the S&P 500 plunged 37%. During the snapback rally in 2009, the fund rose 25.3%, slightly behind the 26.5% return on the S&P 500.

"Not being able to capture the entire upside in a roaring market is a criticism, but it's one I'm comfortable living with," Platte says.

Platte says gridlock in Washington is making investors unsure of how to invest in the stock market, if they want to invest at all.

"I've been doing this since 1975, and I know the future is uncertain," he says. "Times look pretty bleak right now. The economy has been on its back for quite some time. It's said that we're in a recovery but it sure doesn't feel like it. There is always this nagging thing. People have been scared of stocks for some time. The volatility has been high. But as a result, there are a number of stocks that are attractive."

Some investors may disregard the Ave Maria family of funds because of its mandate that forbids fund managers from owning companies it says violate core teachings of the Roman Catholic Church. Those include companies that contribute to Planned Parenthood, distribute pornography or are involved in stem cell research.

However, Platte argues the stock screen used by Ave Maria funds has been overstated. "It's not a huge factor. There is a moral-screen aspect to it, but we spend much more time looking at the investment fundamentals," he says.

Favored companies that pass the stock screen are those that Platte "could own for the rest of my life," he says. "They make the kinds of products that we use all the time. As I look at it, stocks have good value to be found in surprisingly good names. The bond market is hard to get excited about. But equities have some pretty darn good companies."

Five of Platte's rising dividend stock favorites, owned in the Ave Maria Rising Dividend Fund, are detailed below and on the following pages.

Lowe's ( LOW)

Company Profile: Lowe's is the home-improvement retail rival to Home Depot ( HD), with more than 1,700 stores in the U.S.

Current Share Price: $24.05 (Nov. 29)

Dividend Yield: 2.3%

Platte's Take: Lowe's stock has endured a tumultuous year, rising as high as $27.45 earlier this year before dropping to a 52-week low of $18.07 in August. Shares have rallied back but are still down 4% this year. With an increasing dividend, Platte sees plenty of opportunity in Lowe's.

"It's a stock that has been beaten up pretty badly. Building is held in such low repute right now. I hesitate to even say 'housing,' " Platte says. "But we view it as a well-run company that has exposure to building. Whether it's 2013 or 2014, housing will pick up. Houses need to be taken care of. In a pretty poor environment, they've actually done well. And they've increased their dividend through the hard times."

Lowe's was the fifth largest position in the Ave Maria Rising Dividend Fund as of Sept. 30, accounting for 3.2% of the portfolio's net assets.

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