Skip to headerSkip to main contentSkip to footer
Get our Free E-newslettersGet our Free E-newsletters
Kiplinger logoLink to homepage
Get our Free E-newslettersGet our Free E-newsletters
Subscribe to Kiplinger
Subscribe to Kiplinger
Save up to 76%
Subscribe
Subscribe to Kiplinger
  • Store
  • Home
  • Investing
  • Retirement
  • Taxes
  • Personal Finance
  • Your Business
  • Wealth Creation
    • Podcasts
    • Economic Outlooks
    • Tools
    • Kiplinger's Personal Finance Magazine
    • The Kiplinger Letter
    • The Kiplinger Tax Letter
    • Kiplinger's Investing for Income
    • Kiplinger's Retirement Report
    • Store
    • Manage My E-Newsletters
    • My Subscriptions
Skip advert
  • Home
  • investing
investing

Great Dividend Stocks for 2014

Flush with cash, corporate America has launched a new golden age of dividends, pumping record sums into investors' pockets.

by: Tom Petruno
February 19, 2014

Thinkstock

Skip advert

Flush with cash, corporate America has launched a new golden age of dividends, pumping record sums into investors' pockets. But even as shareholders reap that windfall, some wonder how sustainable it is. Memories of the rash of dividend cuts during the Great Recession still loom large.

The good news: Many blue-chip companies have ample room to continue raising dividends. The "payout ratio" (the percentage of annual earnings paid out in dividends) is expected to be about 34% for Standard & Poor's 500-stock index in 2014, says Howard Silverblatt, senior index analyst at S&P. That would be well below the historical average of 52%.

Of course, the main reason to buy a stock is for capital gains. But if share-price appreciation slows — or even reverses course for a while — after the bull market surge of the past five years, dividends will become more important. And don't forget that dividends enjoy a tax advantage: They are taxed at a maximum federal rate of 23.8%, compared with a top rate of 43.4% on ordinary income, such as bond interest.

Here's a look at seven dividend stocks worth considering. Some have strong current yields, some promise strong dividend-growth potential, and some offer both. Take your pick.

Prices and related data are as of February 13, 2014.

Skip advert
Skip advert
Skip advert

1 of 8

Verizon Communications

istockphoto

Skip advert
  • Share price: $47.31

    Current yield: 4.5%

    Annualized dividend rate: $2.12

    Annualized five-year dividend-growth rate: 2.9%

  • Verizon Communications (VZ) has long been high-yield champ for investors who want current income, with yield well above the S&P 500's average of 2%.
  • Bottom Line: High and "safe" current yield, but there are doubts about dividend growth.

Like its archrival AT&T (T), Verizon faces heavy expenses for network upgrades. As such, neither telecom giant has offered great dividend growth: Both have raised their payouts a modest 15% since 2008, compared with 29% for the S&P 500 overall.

Skip advert
Skip advert
Skip advert

2 of 8

McDonald's

Courtesy McDonald's

Skip advert
  • Share price: $95.46

    Current yield: 3.4%

    Annualized dividend rate: $3.24

    Annualized five-year dividend-growth rate: 10.1%:

  • Bottom Line: High and "safe" current yield, but there are doubts about dividend growth.

The fast-food king has become a symbol of the doubts nagging many multinational consumer-stock giants. Companies such as McDonald's (MCD), Coca-Cola (KO), Wal-Mart Stores (WMT) and Procter & Gamble (PG) have been among the most dependable dividend stocks of the past 30 years. But all face intense competitive pressures.

McDonald's sales growth has slowed markedly over the past two years, and so have earnings. Profit per share in 2013 edged up just 3.5%, to $5.55. The pace of dividend increases also has slowed, from 15% in 2011 to 10% in 2012 and just 5% last year. The stock price has gone nowhere over the past two years.

The current dividend is almost certainly safe. But the stock's above-average yield of 3.4% indicates that investors are worried about the company’s future growth. Perhaps more than ever, investors in McDonald's and other consumer giants need to focus not just on the current dividend but on where it's headed.

Skip advert
Skip advert
Skip advert

3 of 8

Philip Morris International

Thinkstock

Skip advert
  • Share price: $79.24

    Current yield: 4.7%

    Annualized dividend rate: $3.76

    Annualized five-year dividend-growth rate: 11.7%

  • Bottom Line: Above-average current yield and strong dividend-growth prospects.

Tobacco is controversial as an investment, of course. And that means the market demands more of tobacco companies, to the benefit of shareholders: For investors willing to set aside social concerns, Philip Morris International (PM) shares offer both a high current yield and hefty dividend-growth potential. The dividend has more than doubled since mid 2008, when the company was spun off from Altria Group (MO). Altria kept the domestic business, leaving Philip Morris the number-two marketer of cigarettes outside the U.S. (behind only state-owned China National Tobacco).

Philip Morris signaled last year that earnings would be weak in 2014, in part because of spending on new "reduced-risk" tobacco products, including e-cigarettes. That warning depressed the stock in 2013. But as Morningstar has noted, the New York City-based company remains a "cash-generating machine" and understands its shareholders' desire for rising dividends over the long term.

Skip advert
Skip advert
Skip advert

4 of 8

Lockheed Martin

Courtesy Lockheed Martin

Skip advert
  • Share price: $159.80

    Current yield: 3.3%

    Annualized dividend rate: $5.32

    Annualized five-year dividend-growth rate: 18.5%

  • Bottom Line: Above-average current yield and strong dividend-growth prospects.

The defense business, like tobacco, is shunned by some investors. So Lockheed (LMT), the world's biggest defense contractor, has used its dividend to show its commitment to rewarding shareholders with hard cash, in addition to aggressively buying back shares (as many other companies have been doing). It has more than tripled its payout since 2008. The most recent hike was a 16% increase paid last December.

The company's fortunes remain tied to government spending in the U.S. and abroad, and in particular to fighter jets such as the F-35. But even though Lockheed’s payout ratio has risen from 23% in 2008 to 50% today, that still leaves room for decent dividend growth if management maintains its policy of directing cash back to shareholders.

Skip advert
Skip advert
Skip advert

5 of 8

CVS Caremark

Courtesy CVS

Skip advert
  • Share price: $69.48

    Current yield: 1.6%

    Annualized dividend rate: $1.10

    Annualized five-year dividend-growth rate: 29.3%

  • Bottom Line: Lower current yield but rapid dividend-growth potential.

The drugstore chain won't land on anyone's list of high-yielding stocks. Its appeal lies in its stunning dividend growth. CVS Caremark (CVS) has quadrupled its payout since 2008. That includes a 22% increase announced in December. The company is sending a clear message about its intent to reward shareholders, says Kelley Wright, managing editor of the dividend-focused Investment Quality Trends newsletter in La Jolla, Cal. "CVS just produces year in and year out," he says.

Besides running its drugstore chain, CVS became a leading manager of pharmacy benefits for health care providers when it bought Caremark in 2007. That is the "true driver" of the company's economic advantage over rivals, writes Morningstar. CVS is expected to earn $4.48 a share this year, or four times its dividend. That leaves plenty of leeway for further dividend hikes.

Skip advert
Skip advert
Skip advert

6 of 8

Reliance Steel & Aluminum

Thinkstock

Skip advert
  • Share price: $72.86

    Current yield: 1.8%

    Annualized dividend rate: $1.32

    Annualized five-year dividend-growth rate: 27.0%

  • Bottom Line: Lower current yield but rapid dividend-growth potential.

Its name notwithstanding, Reliance Steel & Aluminum (RS) doesn't produce metals. Instead, it has built a business with $8.5 billion in annual sales by serving as a middleman, distributing steel and other metals to myriad manufacturers nationwide.

The company has grown phenomenally via acquisitions over the past decade to become the largest U.S. metals distributor. It expects to continue on that track, gaining more economies of scale. With the stock near record levels, the dividend yield is modest. But the pace of increase has been dramatic: a 230% jump since 2008.

To be sure, this is a cyclical business, and Reliance's earnings would suffer in a recession. But assuming the economy continues to expand, the company should earn about $5.85 a share this year, Wall Street analysts estimate. The current dividend payout is just 23% of that figure. Given its history, Reliance's commitment to dividend growth is a "no-brainer," says Wright, of Investment Quality Trends.

Skip advert
Skip advert
Skip advert

7 of 8

Baxter International

Thinkstock

Skip advert
  • Share price: $69.26

    Current yield: 2.8%

    Annualized dividend rate: $1.96

    Annualized five-year dividend-growth rate: 13.5%

  • Baxter International (BAX), a diversified health care firm with operations in biotech and medical devices, is a bet that an aging population will inevitably mean more spending on certain kinds of services. The company is a leading supplier of hospital IV solutions, for example, and a big name in at-home dialysis services overseas.
  • Bottom Line: Lower current yield but rapid dividend-growth potential.

Baxter also has made a point of being generous with dividends, raising its payout 88% over the past five years. The pace could slow in the near term as the company deals with tougher competition in some businesses, such as hemophilia treatments. But over the longer term, Baxter has room to continue boosting its payout, if it chooses: The current annualized dividend of $1.96 a share is just 38% of the $5.14 a share the company is expected to earn in 2014.

Skip advert
Skip advert
Skip advert

8 of 8

More from Kiplinger

Thinkstock

Skip advert

SLIDE SHOW: 12 Stocks to Get Dividends Every Month

How to Find Safe Dividend Stocks

SLIDE SHOW: 9 Enticing Dividend-Paying Stock Picks

6 Stocks Paying Dividends for the First Time

5 Income Investments That Should Shine in 2014

SLIDE SHOW: The World's 10 Best Stocks

Skip advert
Skip advert
Skip advert
  • dividend stocks
  • investing
  • Kiplinger's Investing Outlook
  • Investing for Income
Share via EmailShare on FacebookShare on TwitterShare on LinkedIn
Skip advert
Skip advert
Skip advert
Skip advert

Recommended

Sometimes Renting Is Better Than Buying
investing

Sometimes Renting Is Better Than Buying

A home is an asset that generally appreciates in value, but it might not be the most optimal way to build wealth from an investment point of view.
May 25, 2022
Bond Values in a Volatile Market
Investing for Income

Bond Values in a Volatile Market

While the market's instability may not be over just yet, the latter half of the year should be less daunting – and possibly more rewarding – for inves…
May 25, 2022
The 12 Best Healthcare Stocks to Buy for the Rest of 2022
healthcare stocks

The 12 Best Healthcare Stocks to Buy for the Rest of 2022

Investors seeking out defensive plays in an uncertain market may want to take a closer look at these 12 top-rated healthcare stocks.
May 25, 2022
McDonald's (MCD) Stock: Tasty, Empty Calories
Investing for Income

McDonald's (MCD) Stock: Tasty, Empty Calories

For some, ESG challenges such as climate change and animal welfare offset the durability and dividends of MCD shares.
May 25, 2022

Most Popular

Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math
retirement planning

Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math

The math isn’t as tough as you might think. It all starts with dividing your assets into three different buckets.
May 23, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Why Are Gas Prices Still Going Up?
spending

Why Are Gas Prices Still Going Up?

The cost of a gallon of gas is heading back toward its March highs. What’s driving the resurgence, and will gas prices go down anytime soon?
May 23, 2022
  • Customer Service
  • About Us
  • Advertise With Us (PDF)
  • Privacy Policy
  • Cookie Policy
  • Kiplinger Careers
  • Accessibility
  • Privacy Preferences

Subscribe to Kiplinger's Personal Finance

Be a smarter, better informed investor.
Save up to 76%Subscribe to Kiplinger's Personal Finance
Do Not Sell My Information

Kiplinger is part of Future plc, an international media group and leading digital publisher. Visit our corporate site www.futureplc.com
© Future US LLC, 10th floor, 1100 13th Street NW, Washington, DC 20005. All rights reserved.

Follow us on InstagramFollow us on FacebookFollow us on TwitterConnect on LinkedInConnect on YouTube