18 Dividend Stocks That Will Outlive the Hype

NEW YORK (TheStreet) -- With dividend investing suddenly in vogue, my inner contrarian shudders with every pro-dividend TV segment and newspaper headline.

"Leave my beloved dividend stocks alone!" -- I think and drift into memories of the good old days when the media celebrated cash-flow negative "growth" stocks and sneered at corporate bellwethers as "stodgy" and "grandfatherly."

But then my better judgment appeals to me: It's for the best.

Seth Klarman -- the famous and elusive value investor -- once asked himself an interesting question in the foreword of his hard-to-find book Margin of Safety:

" In writing this book, Don't I run the risk of encouraging increased competition, thereby reducing my own investment returns?" He then rationalizes, "I am pained by the disastrous investment results experienced by great numbers of unsophisticated or undisciplined investors."

I too am pained by the attitude that dividends are a harbinger of corporate doom, a sentiment that -- despite the growing popularity of dividends -- has left many investors conflicted.

First off, history is firmly on the side of dividend-paying stocks: collectively, they outperform. Second, why should the owner of a company only enjoy the fruits of corporate success by relinquishing ownership? This is perverse! If you love the company you own, you should profit more by owning more.

Lastly, dividends can save the world. It may sound ridiculous, but Benjamin Graham once posited that if all corporations maintained a generous dividend policy, then the likelihood of a banking crisis would slowly fade away.

When America's most credit-worthy corporations keep war chests to self-finance their own expansion, then bankers are left with fewer prudent investments (and too much time to get into mischief).

So, having said all of this, here is a turnkey portfolio of dividend growth stocks that should provide a reasonable amount of growth and stability. More than 100 corporations with a history of raising dividends (for a decade or more) were analyzed. Any company with an abnormally low tax rate was discarded. The final list reflects the companies that have a liability-adjusted cash flow yield* 1.5 times greater than the 10-year Treasury note and a return on invested capital (using 5-year average data) greater than the average of all the companies analyzed (22.69%).

The number of stocks on this list that are at or near 52-week highs is somewhat distressing, but no more distressing than the valuation of the stock market as a whole. Remember, this list is constructed using only quantitative criteria (in other words, strictly by the numbers). As always, model portfolios should not be treated as gospel; rather, use them as a starting point for your own research. Similarly, all investors should apply their own valuation and qualitative criteria to determine what constitutes a "good buy."

*5-Year Avg. Free Cash Flow / ((Outstanding Shares x Per Share Price) + (Liabilities - Cash))

18. Brown-Forman

Company Profile: Brown-Forman ( BF.A) is an American-owned wine and spirits company most famous for its Jack Daniels brand (as well as Southern Comfort and Finlandia).

Liability-Adjusted Cash Flow Yield: 3.38%

Dividend Yield: 1.73%

5-Year Dividend Growth (Annualized): 5.55%

Return on Invested Capital: 26.06%

Payout Dates: Brown-Forman usually declares dividends during March, June, September and December.

17. Polaris

Company Profile: Polaris ( PII) makes recreational vehicles including ATVs, motorcycles and snowmobiles.

Liability-Adjusted Cash Flow Yield: 3.41%

Dividend Yield: 2.21%

5-Year Dividend Growth (Annualized): 5.77%

Return on Invested Capital: 576.34%*

Payout Dates: Polaris usually declares dividends during January, April, July and October.

*Polaris' balance sheet carries its "accrued liabilities" as "current liabilities." If this figure is moved into long-term liabilities (invested capital), then the ROIC will appear substantially lower (but an excellent return, nevertheless).

16. Tennant

Company Profile: Tennant ( TNC) is a manufacturer of cleaning solutions from street sweepers to vacuum cleaners.

Liability-Adjusted Cash Flow Yield: 3.65%

Dividend Yield: 1.60%

5-Year Dividend Growth (Annualized): 7.21%

Return on Invested Capital: 37.23%

Payout Dates: Tennant usually declares dividends during February, May, August and November.

15. FactSet Research

Company Profile: FactSet Research ( FDS) provides financial research and investment analytics for money managers, government agencies and law firms.

Liability-Adjusted Cash Flow Yield: 3.80%

Dividend Yield: 1.10%

5-Year Dividend Growth (Annualized): 19.88%

Return on Invested Capital: 58.60%

Payout Dates: FactSet research usually declares dividends during February, May, August and November.

14. Graco

Company Profile: Graco ( GGG) is an industrial company specializing in fluid handling, not to be confused with Graco Baby: maker of car seats and other baby products.

Liability-Adjusted Cash Flow Yield: 3.86%

Dividend Yield: 1.77%

5-Year Dividend Growth (Annualized): 4.94%

Return on Invested Capital: 48.05%

Payout Dates: Graco usually declares dividends during January, April, July and October.

13. Colgate-Palmolive

Company Profile: Colgate-Palmolive ( CL) is a consumer goods company famous for its namesake brand(s). Other popular brands within the company's portfolio include Speedstick and Ajax.

Liability-Adjusted Cash Flow Yield: 3.98%

Dividend Yield: 2.58%

5-Year Dividend Growth (Annualized): 10.15%

Return on Invested Capital: 37.24%

Payout Dates: Colgate-Palmolive usually declares dividends during January, April, July and October.

12. Clorox

Company Profile: Clorox ( CLX) is a consumer products company and a household name. Beyond its namesake bleach, other notable brands include Brita and Burt's Bees.

Liability-Adjusted Cash Flow Yield: 4.06%

Dividend Yield: 3.52%

5-Year Dividend Growth (Annualized): 10.13%

Return on Invested Capital: 30.08%

Payout Dates: Clorox usually declares dividends during January, April, July and October.

11. Sigma-Aldrich

Company Profile: With over 187,000 products, Sigma-Aldrich ( SIAL) is a hard company to classify but can be referred to as a scientific materials company.

Liability-Adjusted Cash Flow Yield: 4.09%

Dividend Yield: 1.11%

5-Year Dividend Growth (Annualized): 9.37%

Return on Invested Capital: 23.23%

Payout Dates: Sigma-Aldrich usually declares dividends during February, May, August and November.

10. Sherwin-Williams

Company Profile: Sherwin-Williams ( SHW) is best-known as a paint company, but really the company specializes in "coatings" for a wide range of business and industries.

Liability-Adjusted Cash Flow Yield: 4.47%

Dividend Yield: 1.45%

5-Year Dividend Growth (Annualized): 2.99%

Return on Invested Capital: 38.33%

Payout Dates: Sherwin-Williams usually declares dividends during February, May, August and November.

9. Genuine Parts

Company Profile: Genuine Parts ( GPC) -- parent company of Napa Automotive -- is a supplier of automotive parts and industrial supplies.

Liability-Adjusted Cash Flow Yield: 4.51%

Dividend Yield: 3.19%

5-Year Dividend Growth (Annualized): 4.28%

Return on Invested Capital: 31.27%

Payout Dates: Genuine Parts usually declares dividends during March, June, September and December.

8. International Business Machines

Company Profile: IBM ( IBM) might be a household name, but the average American might know the company only for its products; the IT giant also has a vast business services division.

Liability-Adjusted Cash Flow Yield: 4.62%

Dividend Yield: 1.46%

5-Year Dividend Growth (Annualized): 14.09%

Return on Invested Capital: 57.35%

Payout Dates: IBM usually declares dividends during February, May, August and November.

7. Family Dollar

Company Profile: Family Dollar ( FDO) operates thousands of discount stores across the U.S. The nature of these stores is often described as "small box," as opposed to "big box" stores like Wal-Mart ( WMT).

Liability-Adjusted Cash Flow Yield: 4.71%

Dividend Yield: 1.46%

5-Year Dividend Growth (Annualized): 9.37%

Return on Invested Capital: 23.38%

Payout Dates: Family Dollar usually declares dividends during March, June, September and December.

6. Emerson Electric

Company Profile: Emerson ( EMR) may best be described as an engineering company that develops solutions for complex problems. The company works across many disciplines and industries.

Liability-Adjusted Cash Flow Yield: 5.25%

Dividend Yield: 3.08%

5-Year Dividend Growth (Annualized): 5.73%

Return on Invested Capital: 25.24%

Payout Dates: Emerson usually declares dividends during February, May, August and November.

5. Stryker

Company Profile: Stryker ( SYK) is a medical device manufacturer that creates products for the surgical, spinal and neurotechnology fields.

Liability-Adjusted Cash Flow Yield: 5.27%

Dividend Yield: 1.57%

5-Year Dividend Growth (Annualized): 17.84%

Return on Invested Capital: 24.99%

Payout Dates: Stryker usually declares dividends during March, June, September and December.

4. Lancaster Colony Corp.

Company Profile: Lancaster Colony ( LANC) is a consumer goods company that makes and markets specialty foods and glassware (including candles).

Liability-Adjusted Cash Flow Yield: 5.30%

Dividend Yield: 2.20%

5-Year Dividend Growth (Annualized): 4.37%

Return on Invested Capital: 29.62%

Payout Dates: Lancaster Colony Corp. usually declares dividends during March, June, September and December.

3. Bard

Company Profile: Bard ( BCR) is a medical device manufacturer that creates products to address surgical specialties, oncology, urology and vascular disciplines.

Liability-Adjusted Cash Flow Yield: 5.63%

Dividend Yield: 0.79%

5-Year Dividend Growth (Annualized): 4.99%

Return on Invested Capital: 33.01%

Payout Dates: Bard usually declares dividends in January, April, July and October.

2. General Dynamics

Company Profile: General Dynamics ( GD) is a large defense contractor that specializes in aerospace, combat systems, information technology and marine systems. The company services the U.S. military and other commercial customers.

Liability-Adjusted Cash Flow Yield: 5.79%

Dividend Yield: 2.82%

5-Year Dividend Growth (Annualized): 10.72%

Return on Invested Capital: 24.50%

Payout Dates: General Dynamics usually declares dividends during January, April, June and October.

1. McGraw-Hill

Company Profile: McGraw-Hill ( MHP) is a diversified media company specializing in financial information and education. Some of the company's more familiar brands include J.D. Power and Associates and Standard & Poor's.

Liability-Adjusted Cash Flow Yield: 6.83%

Dividend Yield: 2.20%

5-Year Dividend Growth (Annualized): 4.05%

Return on Invested Capital: 132.37%

Payout Dates: McGraw-Hill usually declares dividends during February, May, August and November.

>>To see these stocks in action, visit the 18 Dividend Stocks That Will Outlive the Hype portfolio on Stockpickr.

-- Written by John DeFeo in New York City

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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