The Kiplinger Dividend 15: Our Favorite Dividend-Paying Stocks

Dividend Stalwart: 3M

• Yield: 3.3%
• Annual dividend: $5.92
• Consecutive years of increases: 63
• Five-year dividend growth rate: 5.9%
• One-year total return: 9.0%

3M (MMM (opens in new tab), $177), the maker of Post-it Notes, ACE bandages and myriad other consumer, industrial, electronic and healthcare products, extended its streak of consecutive dividend increases to 63 years in 2021.

The conglomerate's bottom line has been crimped by rising costs for raw materials, worker pay and transporting goods, as well as legal costs related to lawsuits involving military earplugs.

Still, business remains sound. Sales in the first six months of 2021 rose 16%, to $17.8 billion. The stock sports a plump 3.3% yield. And after pulling back from its May peak, 3M's below-market price-earnings ratio of 16.4 is attractive. Analysts at research firm Argus say the "dividend is secure and poised to grow."

Dividend Stalwart: Air Products & Chemicals

• Yield: 2.3%
• Annual dividend: $6.00
• Consecutive years of increases: 39
• Five-year dividend growth rate: 11.8%
• One-year total return: -9.5%

Despite starting 2021 with a 12% dividend increase, shares of Air Products & Chemicals (APD (opens in new tab), $265), an industrial gas company, have tumbled nearly 10% over the past year.

The weakness comes despite estimated sales growth of 14% for the fiscal year that ended in September (reversing a slight revenue drop the prior year) and projections for 8% growth in fiscal 2022, according to investment research firm CFRA. Analysts blame the underperformance on pandemic headwinds and uncertainties surrounding an energy project in Saudi Arabia. But both drags appear to be mostly in the rearview mirror.

Meanwhile, the company is seizing opportunities in green-friendly businesses, including gasification (a process that sustainably converts feedstocks and natural resources into synthetic gas); carbon capture projects; and production of hydrogen to power buses and trucks.

CFRA analyst Matthew Miller says Air Products' strength in clean energy, its ability to raise prices and new project wins will generate enough free cash flow (cash left over after paying operating expenses and spending to maintain or expand the business) to fund dividend hikes.

Dividend Stalwart: Emerson Electric

• Yield: 2.1%
• Annual dividend: $2.02
• Consecutive years of increases: 64
• Five-year dividend growth rate: 1.2%
• One-year total return: 42.4%

Emerson Electric (EMR (opens in new tab), $97), the maker of climate-control systems and automation products that help businesses improve efficiency, is in rebound mode. Sales slid 9% in the fiscal year that ended in September 2020, but company execs forecast a 9%-to-10% sales jump in fiscal 2021.

And following fiscal 2020's profit contraction, annual earnings are forecast to grow 10%, on average, over the next three to five fiscal years, according to Zacks Investment Research.

Shares have responded, rising 42.4% in the past 12 months. A profit pop bodes well for free cash flow and, hence, dividends, which have risen for 64 years straight. Emerson estimates that it will have generated $3 billion in free cash flow in fiscal 2021, up 17% from the previous year.

Automation helps its customers boost profits, so Emerson's services are in high demand, says Morningstar analyst Joshua Aguilar.

Dividend Stalwart: Johnson & Johnson

• Yield: 2.6%
• Annual dividend: $4.24
• Consecutive years of increases: 59
• Five-year dividend growth rate: 5.8%
• One-year total return: 10.9%

Johnson & Johnson (JNJ (opens in new tab), $161) has been in the spotlight thanks to its single-shot COVID-19 vaccine.

In October, the company asked U.S. health regulators to authorize use of its COVID booster shot. The healthcare giant forecasts $2.5 billion in COVID vaccine sales for 2021, but that is just a fraction of its 2021 revenue forecast of $94.6 billion.

J&J boasts a deep drug pipeline, ample cash flow and a diverse revenue base that includes its pharmaceutical business (which sells drugs such as Stelara, to treat Crohn's disease), its consumer health business (with well-known brands such as Motrin) and its medical-device division.

J&J is on course to boost its dividend by 5% in 2022, according to Argus analysts.

Dividend Stalwart: McDonald's

• Yield: 2.2%
• Annual dividend: $5.52
• Consecutive years of increases: 45
• Five-year dividend growth rate: 8%
• One-year total return: 12%

In September, McDonald's (MCD (opens in new tab), $248) increased its dividend for the 45th straight year since making its first payout in 1976, when a Big Mac cost 75 cents (it goes for $3.99 today).

The fast-food chain's business is heating up, powered by the easing of COVID-19 restrictions, price increases and a spike in app-driven sales to customers who can order and get their burgers and fries without ever setting foot in a restaurant.

McDonald's global sales in the first six months of the year surpassed pre-pandemic levels. The company is doubling down on its "three D's" strategy of digital, delivery and drive thru. In the first half of 2021, digital sales in the restaurant chain's top six markets were 70% higher than the same period last year.

Oppenheimer analyst Brian Bittner likes the stock's defensive characteristics and says it's a bargain relative to shares of peer restaurants.

Dividend Stalwart: Procter & Gamble

• Yield: 2.5%
• Annual dividend: $3.48
• Consecutive years of increases: 65
• Five-year dividend growth rate: 5.4%
• One-year total return: 2.4%

Procter & Gamble (PG (opens in new tab), $142), the consumer packaged-goods giant that brings you Mr. Clean, is Mr. Consistency when it comes to dividend hikes. A 10% increase earlier this year was the company's 65th consecutive annual increase, the longest streak among the Kiplinger Dividend 15.

In its most recent fiscal year, which ended in June, P&G paid out $8.3 billion in dividends, and the company has indicated it will pay out more than $8 billion again in fiscal 2022.

Because of rising commodity prices and higher freight costs to ship its iconic brands, such as Crest and Cascade, P&G projects sales in fiscal 2022 will rise 4%, to roughly $79 billion – down from a 7% growth rate in 2021.

Still, analysts say P&G continues to execute well after streamlining its operations in 2018. Analysts at investment firm Credit Suisse say P&G's recent price increases on some products are an underappreciated tailwind.

Dividend Stalwart: Walmart

• Yield: 1.6%
• Annual dividend: $2.20
• Consecutive years of increases: 48
• Five-year dividend growth rate: 1.9%
• One-year total return: 0.4%

Walmart (WMT (opens in new tab), $140) stock has been a bit of a dud, up less than 1% in the past 12 months. The retailer is now less of a speedy grower and more of a steady cruiser, with a dividend payout that has risen for 48 consecutive years.

Analysts at CFRA expect Walmart to generate sales of $562 billion in its fiscal 2022 year ending in January, up less than 1% from the previous fiscal year, and they see a roughly 5% increase for fiscal 2023. But the company projects that annual global e-commerce sales could reach $75 billion by the end of fiscal 2022, ranking the online unit alone among the 20 biggest U.S. retailers, using National Retail Federation data.

Diversified revenue streams include a growing grocery business and a free-delivery subscription service, and the retailer is also using its connection to 165 million weekly customers and its logistics know-how to branch into financial and health and wellness services, in-store advertising, and last-mile delivery, in which it delivers other businesses' packages for them for a fee. CFRA analyst Arun Sundaram says those changes are underappre­ciated by investors – one reason he upped his rating on the stock to Buy from Hold in September.

Dividend Grower: AbbVie

• Yield: 4.7%
• Annual dividend: $5.20
• Consecutive years of increases: 8
• Five-year dividend growth rate: 17.9%
• One-year total return: 33.1%

Drug company AbbVie (ABBV (opens in new tab), $111) is best known for its blockbuster immunology drug Humira, which accounted for 37% of the company's $26.9 billion in sales in the first half of 2021.

The company hiked its dividend by 10% in early 2021, and over the past 12 months its shares have risen 33.1%, topping the S&P 500. Yet AbbVie's shares still trade at just eight times its expected earnings over the next 12 months, compared with a P/E of nearly 22 for the S&P 500.

Free cash flow is plentiful, having increased sharply in 2020 following the acquisition of Allergan and its successful Botox business. AbbVie has told Wall Street analysts that it expects to generate $21 billion in free cash flow in 2021, which bodes well for future dividend increases.

Dividend Grower: Home Depot

• Yield: 2.0%
• Annual dividend: $6.60
• Consecutive years of increases: 12
• Five-year dividend growth rate: 19.1%
• One-year total return: 19.8%

Home Depot (HD (opens in new tab), $334) has raised its payout by 19%, on average, in each of the past five years.

The nation's largest home-improvement retailer is benefiting from "nesting," which consultant McKinsey Global Institute says is the biggest pandemic trend that's likely to stick around.

In its fiscal second quarter, which ended Aug. 1, Home Depot for the first time ever posted quarterly revenues of more than $40 billion. The results were driven by strong sales to professional con­tractors, who say renovation backlogs are still growing, and an aging housing stock that requires upgrades. Rising home values (which boost shoppers' home equity) and continued low in­terest rates (which make home renovations more affordable) should continue to drive profits and sizable dividend payouts.

Analysts at Wedbush Securities expect a 10% payout hike in fiscal 2022, which kicks off on Jan. 31, and another 10% boost in fiscal 2023.

Dividend Grower: Lockheed Martin

• ​Yield: 3.2%
• Annual dividend: $11.20
• Consecutive years of increases: 19
• Five-year dividend growth rate: 9.0%
• One-year total return: -6.3%

In September, defense contractor Lockheed Martin (LMT (opens in new tab), $354) extended its streak of consecutive dividend hikes to 19 years.

Lockheed, which benefits from defense contracts that stretch over decades, expects to book sales of up to $68.7 billion in 2021, a solid 5% increase from last year but below its average annual sales growth rate of more than 8% in the previous three years. But Congress is closing in on a fiscal 2022 defense budget that's 5% bigger than the record budget of a year earlier.

In September, Lockheed also came to terms with the Pentagon on a deal that would boost the number of F-35 fighter jet sales to the government in both 2021 and 2022. The F-35 accounts for 30% of revenues. The stock is 10% below where it was at the end of 2019, which CFRA analyst Colin Scarola views as "a severe mispricing" that provides room for the shares to climb next year.

Dividend Grower: Texas Instruments

• Yield: 2.4%
• Annual dividend: $4.60
• Consecutive years of increases: 178
• Five-year dividend growth rate: 18.1%
• One-year total return: 34.6%

The analog and embedded chips made by Texas Instruments (TXN (opens in new tab), $195) that go into electric cars, appliances, mobile phones, PCs, medical devices and power grids are tiny. But the company's 13% dividend hike announced in September is the biggest of any of the Dividend 15 members in the past year.

Morningstar analyst Brian Colello foresees robust profitability and free cash flow generation ahead, given TI's focus on more profitable specialty chips, as well as the benefits it derives from owning its own manufacturing facilities. Those include lower costs, greater control of the supply chain, and less exposure to delays and shortages that might result from outsourcing chip production.

A focus on customers in high-growth industrial and auto-related sectors, who are using increasingly more chips in their own products, bodes well for growth at TI.

High Yield: Blackstone Group

• Yield: 2.4%
• Annual dividend: $2.80
• Consecutive years of increases: 1
• Five-year dividend growth rate: 14.2%
• One-year total return: 116.8%

Asset manager Blackstone Group (BX (opens in new tab), $116), which invests mostly in private equity, real estate, hedge funds, and credit and insurance on behalf of pension funds and other institutional investors, has been a big beneficiary of the stock bull market. The investment firm's shares are up 116.8% in the past year.

Blackstone, which makes money by charging clients ad­visory, management and investment-performance fees, as well as from gains on holdings, posted net income of $6.2 billion in the first half of 2021, compared with a loss of $1.3 billion in the first six months of 2020. Blackstone’s three quarterly dividend payouts so far in 2021 total $2.48 per share, up 81% from the first three payouts in 2020.

Although the stock now yields just 2.4%, over the past five years its yield has averaged 5.6%, according to Morningstar.

High Yield: Enterprise Products Partners

• Yield: 7.5%
• Annual distribution: $1.80*
• Consecutive years of increases: 23
• Five-year distribution growth rate: 2.4%
• One-year total return: 47.6%

A year ago, we urged patience with Enterprise Product Partners (EPD (opens in new tab), $24) when the natural gas and oil company that processes, stores and transports fuels was the worst performer on our list. Readers who took our advice were rewarded: Shares have rebounded 47.6% in the past year.

The reopening of the economy has put the energy patch back in bull-market mode, with natural gas and crude prices surging in the past year. The amount of natural gas transported through Enterprise Products' pipelines in the second quarter equaled the volume in the same period back in 2019, before the pandemic.

Investors will appreciate the energy company's 7.5% yield, which is tops among the Dividend 15.

* Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time.

High Yield: Realty Income

• Yield: 4.2%
• Annual dividend: $2.83
• Consecutive years of increases: 27
• Five-year dividend growth rate: 3.2%
• One-year total return: 9.8%

Realty Income (O (opens in new tab), $67), which owns and operates more than 6,700 properties in the U.S., Puerto Rico and the U.K., in September made its 615th consecutive monthly dividend payment.

The real estate investment trust (REIT) is on stronger footing now than during the pandemic, when many tenants stopped paying rent. In July, Realty Income collected 99.4% of the rent it was due across its portfolio, up from 83% in April 2020.

The REIT benefits from the recurring revenues that long-term leases generate. Its acquisition of VEREIT (VER (opens in new tab)), which manages a portfolio of U.S. single-tenant commercial properties, is set to close by year-end and will likely boost cash flow.

High Yield: Verizon Communications

• Yield: 4.8%
• Annual dividend: $2.56
• Consecutive years of increases: 15
• Five-year dividend growth rate: 2.1%
• One-year total return: -5.8%

The nation's largest wireless carrier, Verizon Communications (VZ (opens in new tab), $53), is known for its Fios internet, phone and TV package, its transition to a faster 5G wireless network and its sales of mobile phones.

Verizon isn't a racy stock, but it's still a solid income producer as its smartphones and high-speed internet services have morphed into must-have consumer products.

The stock's 4.8% dividend yield is three times that of the S&P 500. Trading at less than 10 times expected earnings, the stock has been a laggard this year but could get a boost if investor sentiment turns more cautious and money moves back into so-called value stocks and more-defensive names, such as Verizon.