The Kiplinger Dividend 15: Our Favorite Dividend-Paying Stocks
These 15 dividend stock picks, satisfying income investing needs of every kind, held their heads up in a rough year.
The past year wasn’t a great one for dividends, but in the end, it wasn’t horrible, either. Early on, when the pandemic shut down the economy and uncertainty reigned, a slew of companies suspended or trimmed their dividends. So far this year, 42 firms in the S&P 500 index have suspended dividends and 25 have trimmed payouts.
As the economy reopened, albeit in fits and starts, some companies reinstated their dividends—either in part or level with previous payout amounts—including Foot Locker and La-Z-Boy. “I’m not losing sleep about something terrible happening to dividends,” says John Buckingham, editor of the investment newsletter The Prudent Speculator. In fact, Buckingham predicts that the total dividend payout in 2020 for the S&P 500 will come in at $58.78, slightly ahead of the benchmark’s payout of $58.69 in 2019.
Not one of the Kiplinger Dividend 15, our favorite dividend stocks, suspended or cut its payout this year, though the pandemic posed challenges for some of the firms. In fact, nearly all of our companies increased their payouts over the past 12 months. And, as a group, the Dividend 15 stocks yield an average of 3.4%—roughly double the yield of the S&P 500. ( Returns and data are through October 9.)
On a total-return basis, however, the stocks were a mixed bag. Over the past 12 months, the Dividend 15 returned 13.5%, on average, compared with a 21.4% gain in the S&P 500. Air Products & Chemicals, Home Depot and AbbVie, among others, beat the broad market. Enterprise Products Partners and Realty Income were major drags.
Annual dividend is based on the most recent dividend payment. Five-year dividend growth rate is annualized. Sources: Company websites, Morningstar, S&P Dow Jones Indices, Yahoo Finance. Returns and data are through October 9.
Dividend Stalwart: 3M
- Yield: 3.5%
- Annual dividend: $5.88
- Consecutive years of increases: 62
- Five-year dividend growth rate: 7.5%
- One-year total return: 16.0%
3M (MMM, $169) stands out with 62 years of consecutive dividend increases. Its latest step-up came earlier this year, when the maker of Post-it Notes and personal protective equipment, among many other things, declared a 2% increase. That’s short of the previous year’s 6% bump, but business has been wobbly of late. Weakness in its auto and semiconductor markets and a slowdown in sales in China weighed on revenues. And a blitz of lawsuits over two products—military earplugs and a class of chemicals that allegedly harmed the environment—were big worries. But 3M may be turning a corner. Analysts expect sales to climb 5% in 2021, after two years of declines. Plus, the company throws off billions in cash a year, which is good news for its dividend.
Dividend Stalwart: Air Products & Chemicals
- Yield: 1.8%
- Annual dividend: $5.36
- Consecutive years of increases: 38
- Five-year dividend growth rate: 12.6%
- One-year total return: 45.1%
The stock of Air Products & Chemicals (APD, $301) gained 45% over the past 12 months. Business has been good, and the industrial gas company—the world’s largest producer of hydrogen and helium—hiked its payout a whopping 16% earlier this year. Its business is nearly recession-proof: The firm’s customers—chemical, electronics and manufacturing firms, among others—can’t operate without its gases.
Morningstar analyst Krzysztof Smalec sees a “long runway” of growth for years to come, thanks to a solid executive team, as well as two new projects—a $2 billion project to make methanol from coal in Indonesia and a $5 billion plan to build a green hydrogen plant in Saudi Arabia, powered only by wind and solar energy—and expectations for more projects like these to come. So future dividends look to be in good shape.
Dividend Stalwart: Emerson Electric
- Yield: 2.9%
- Annual dividend: $2.00
- Consecutive years of increases: 63
- Five-year dividend growth rate: 1.3%
- One-year total return: 13.3%
Emerson Electric (EMR, $70) makes climate-control systems and automation products that help industrial plants work more efficiently and safely. Business has been in a slump. Some of Emerson’s customers—energy and automotive firms, for instance—are in a cyclical low. And the stock has yet to recover to pre-COVID levels. Even so, in 2019, Emerson generated $2.4 billion in free cash flow (cash profits left over after capital expenditures) and raised payouts by 2%. Dividends accounted for 50% of free cash flow that year—four percentage points lower than in previous years—which bodes well for future payout increases. Analysts expect 8% average annual earnings growth over the next three years.
Dividend Stalwart: Johnson & Johnson
- Yield: 2.7%
- Annual dividend: $4.04
- Consecutive years of increases: 58
- Five-year dividend growth rate: 6.1%
- One-year total return: 20.0%
Johnson & Johnson (JNJ, $151) is a longtime market favorite for its best-in-class balance sheet, blockbuster drug lineup and fat research pipeline. JNJ even has a COVID vaccine in the works, though it had to pause late-stage clinical trials for the drug recently after suffering a setback. Earlier this year, the company raised its dividend 6%, its 58th consecutive annual increase. COVID hurt business earlier this year, so analysts expect flat-ish revenues in 2020, with sales off 1% from 2019. But next year, analysts project a 14% jump in sales.
Dividend Stalwart: McDonald's
- Yield: 2.3%
- Annual dividend: $5.16
- Consecutive years of increases: 44
- Five-year dividend growth rate: 8.7%
- One-year total return: 8.4%
McDonald's (MCD, $225) joined the Dividend 15 this summer, replacing ExxonMobil. Sales at the quick-service restaurant sank 24% earlier this year, due to the COVID lockdown. But by late July, sales had rebounded to 90% of historical business volumes. Long lines at its restaurant drive-through lanes have helped. Despite a difficult year, McDonald’s, which has raised its payout every year since 1976, hiked its dividend 3.2% in October.
Dividend Stalwart: Procter & Gamble
- Yield: 2.2%
- Annual dividend: $3.16
- Consecutive years of increases: 64
- Five-year dividend growth rate: 3.6%
- One-year total return: 20.2%
Stacked next to its fellow Dividend 15 stocks, Procter & Gamble's (PG, $143) shines. The company, which has been paying a dividend for 130 years, declared its 64th consecutive annual payout hike earlier this year (a 6% increase). These days, it can afford it. A retooling at the household products (Tide, Mr. Clean) and personal care (Pantene shampoo and Pampers) company is still paying off six years later. In its latest fiscal year, which ended in June, the company generated $14 billion in free cash flow, a 17% increase from the year before.
Months into the pandemic, the company’s products are still in high demand, and company chief financial officer Jon Moeller says consumer consumption of health and cleaning products may be forever altered. Argus analysts project P&G will raise its dividend 3% in 2021.
Dividend Stalwart: Walmart
- Yield: 1.5%
- Annual dividend: $2.16
- Consecutive years of increases: 47
- Five-year dividend growth rate: 2.0%
- One-year total return: 22.2%
Walmart (WMT, $143) is a rock star in the old-school retail world. Its investment in the video-sharing app TikTok, albeit odd, is an example of how this 58-year-old company is transforming itself. Its free-delivery subscription service, Walmart+, pits the company against Amazon.com’s Prime. But Stifel analyst Mark Astrachan says many Prime members may double up with Walmart+ because Walmart dominates the grocery business and offers same-day delivery in 48 states.
Earnings in Walmart’s latest fiscal year, which ended in January, doubled from the previous year, and the retailer hiked its payout 2% in early 2020. CFRA analyst Garrett Nelson expects the payout increases to continue, given his expectations for 8% revenue growth and 7% earnings growth for the fiscal year that ends in January 2021.
Dividend Grower: AbbVie
- Yield: 5.4%
- Annual dividend: $4.72
- Consecutive years of increases: 48
- Five-year dividend growth rate: 18.3%
- One-year total return: 26.3%
Pharmaceutical firm AbbVie (ABBV, $88) raised its dividend 10% in early 2020. And despite a 26% climb in price over the past 12 months, AbbVie’s stock is still cheap. The drug company’s shares currently trade at less than eight times expected earnings over the next four quarters; its peers trade at 16.
Critics say the company is too reliant on Humira, AbbVie’s blockbuster immunology drug. It accounts for 70% of earnings, and the company’s patent on the drug ends in 2023. But Allergan, which AbbVie officially acquired in May, adds new growth opportunities in eye care, neuroscience and aesthetics (Botox). It also improves AbbVie’s free cash flow (some $13 billion in 2019) by nearly $7 billion, which should support fat future payout increases.
Dividend Grower: Home Depot
- Yield: 2.1%
- Annual dividend: $6.00
- Consecutive years of increases: 11
- Five-year dividend growth rate: 20.5%
- One-year total return: 28.0%
The coronavirus lockdown has been a boon to home buying and remodeling, which has propelled sales at Home Depot (HD, $286). Morningstar analyst Jaime Katz says the company is on track to deliver $125 billion in revenues for the fiscal year that ends in January 2021. That’s a 13% jump from the previous year, and double the average growth rate in recent years. Analysts expect earnings to climb 10% year over year. Over the past five years, Home Depot raised dividends 21% annually, on average. The tempo is slowing, but it’s still robust. In its current fiscal year, Home Depot hiked payouts by 10%. Argus analysts expect another 10% hike next fiscal year.
Dividend Grower: Lockheed Martin
- Yield: 2.7%
- Annual dividend: $10.40
- Consecutive years of increases: 18
- Five-year dividend growth rate: 9.5%
- One-year total return: 2.9%
Defense contracts can last decades. For instance, Lockheed Martin (LMT, $386) has funding that runs through 2070 from the U.S. and other countries, including Japan, the U.K. and Norway, for the F-35, its in-demand combat aircraft, according to Morningstar analyst Burkett Huey. (The company is also behind the Sikorsky helicopters that transport President Trump.) That gives Lockheed a cushion in economic downturns.
Although COVID supply-chain worries and concerns about defense-spending cuts have weighed on shares, the company’s revenues and earnings results have been solid so far this year. The aerospace defense contractor is on track to deliver an 8% increase in revenues in 2020, compared with the previous year, and a 10% hike in earnings per share. Lockheed recently boosted dividends 8%, a sign of its resiliency in a tough economic year. But that’s a tad below the firm’s five-year annualized dividend growth rate of nearly 10%.
Dividend Grower: Texas Instruments
- Yield: 2.7%
- Annual dividend: $4.08
- Consecutive years of increases: 17
- Five-year dividend growth rate: 21.8%
- One-year total return: 22.0%
Texas Instruments (TXN, $151) recently declared a healthy 13% hike in its dividend in the most recent quarter, the biggest increase among our dividend growers over the past 12 months. TI also boasts the best five-year annualized dividend-growth rate (22%) of all the Dividend 15.
The company makes analog chips that convert real-world signals, such as sound and temperature, into digital signals to be processed by other chips. It dominates its industry and has a reputation for turning out high-quality products, says Morningstar analyst Brian Colello. In recent years, TI has improved gross profit margins to 63% of sales, from 50% a decade ago, by shedding less-profitable units and cutting costs.
High Yield: Blackstone Group
- Yield: 2.7%
- Annual dividend: $1.48
- Consecutive years of increases: 1
- Five-year dividend growth rate: -12.9%
- One-year total return: 21.8%
The payouts of asset manager Blackstone Group (BX, $55) vary from quarter to quarter because they hinge on what the company earns. It’s been a challenging year so far, given the rocky financial markets, but in the first half of 2020, Blackstone’s dividends were (more or less) on track. The firm’s three quarterly payouts so far in 2020, for instance, total $1.37, compared with the $1.43 in dividends paid over the same period the previous year.
Because of the quirkiness of its quarterly payments, the stock yields 2.7% annualized based on its most recent payout. But over the past five years, the stock has averaged a 7.2% yield.
High Yield: Enterprise Products Partners, LP
- Yield: 10.5%
- Annual distribution: $1.78*
- Consecutive years of increases: 22
- Five-year distribution growth rate: 3.2%
- One-year total return: -32.4%
Enterprise Product Partners (EPD, $17) provides natural gas and natural gas liquids services, including processing, storage and transportation. It’s also a master limited partnership, which means investors receive a tax-complicating K-1 form. Falling prices for oil and natural gas have been a drag this year for Enterprise, and the stock, down 32% over the past 12 months, is the Dividend 15’s worst performer. That’s boosted the yield to 10.5%, the highest ratio on our list. But analysts believe the company will be a primary beneficiary of rising exports of U.S. natural gas over the coming years, so for now, we are being patient with the stock.
* 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: 4.4%
- Annual dividend: $2.81
- Consecutive years of increases: 26
- Five-year dividend growth rate: 4.2%
- One-year total return: -15.7%
During the COVID shutdown, some tenants of Realty Income (O, $63), stopped paying rent. The real estate investment trust owns and manages 6,500 properties (mostly retail) in the U.S., Puerto Rico and the U.K. In April, Realty Income collected just 88% of the rent it was due; in May, collections dropped to 85%. By July, however, it had recovered to a 92% collection rate.
Even so, shares are down 16% over the past 12 months as investors wait to see how long the impact of the pandemic lingers. Realty Income’s monthly dividend payouts continue apace, however. The company typically increases the payout every three months, albeit by a fraction of a penny. In September, it didn’t miss a beat, raising the monthly dividend by the typical 0.02%. Earlier this year, Realty Income joined the Dividend Aristocrats, companies in the S&P 500 index that have increased dividends for at least 25 consecutive years.
High Yield: Verizon Communications
- Yield: 4.2%
- Annual dividend: $2.51
- Consecutive years of increases: 14
- Five-year dividend growth rate: 2.1%
- One-year total return: 4.6%
We don’t expect a lot of growth from Verizon (VZ, $59). It is the country’s largest wireless carrier, and we like it for the monopoly-like hold it has on its business, which includes landline, mobile, internet and fiber-optic TV services. The stock’s 4.2% dividend yield is also a plus. Verizon had $7.9 billion in cash in mid 2020 and generated $17.8 billion in free cash flow over the previous 12 months—up 5% from the previous year, according to Argus analysts. “Its dividend is safe,” they say.
The company recently announced a plan to acquire prepaid mobile phone provider Tracfone, which will make Verizon the country’s top prepaid cell-phone provider. Analysts expect 3.4% average annual growth in earnings over the next three years.
