Our Top 5 Dividend Stocks

2/24/2014


Really, we do like dividends.

Readers sometimes give us grief because we recommend several stocks that pay minimal or no dividends. Our reasoning is simple: We seek stocks with strong total-return potential. We don't worry too much about what percentage of the total return comes from income versus price appreciation, and plenty of low-yield or no-yield stocks fit our criteria.

However, many of you prefer returns in the form of yield. With that in mind, check out the table below, which contains our top five dividend stocks. We started the search with the 12 stocks on our recommended lists that yield at least 2%, then weeded out those that don't earn Buy ratings. Lastly, we gave precedence to stocks with a long history of dividend growth.

TOP HIGH-YIELD STOCKS
Company (Price; Ticker)
Yield
(%)
Last.
Div.
Hike
(%)
20-Year
Annual.
Div.
Growth
(%)
Apple ($546; AAPL)
2.2
15
*
Helm. & Payne ($93; HP)
2.7
25
13
J.P. Morgan ($58; JPM)
2.6
27
6
Union Pacific ($178; UNP)
2.0
15
9
Wells Fargo ($46; WFC)
2.6
20
11
* Company didn't start dividend until 2012.

We did make an exception for Apple ($546; AAPL), which in 2012 paid its first dividend in more than 16 years. Apple raised its dividend 15% in April 2013 and seems likely to boost it again this spring. The current dividend equates to about $11 billion, or 30% of Apple's trailing 12-month earnings. That payout ratio, coupled with more than $158 billion in cash and investments, leaves plenty of room for future increases.

The top five features two big financial firms — J.P. Morgan Chase ($58; JPM) and Wells Fargo ($46; WFC) — both of which sharply cut their dividends in 2009, at the height of the financial crisis. Both companies have labored to improve their balance sheets and satisfy new regulatory requirements. In response, the Federal Reserve allowed them to begin raising their payouts in 2011. Over the last three years, J.P. Morgan has grown its quarterly per-share dividend to $0.38 from $0.05, while Wells Fargo now pays out $0.30, also up from $0.05.

After nearly 15 years of paying small dividends, contract oil-and-gas driller Helmerich & Payne ($93; HP) doubled the payout in December 2012, then tripled it in June 2013. Its 2.7% yield is now the second-highest among our recommended stocks.

Railroad operator Union Pacific ($178; UNP), added to the Focus List in the Feb. 17 issue, has also shifted its dividend to a faster track in recent years. The per-share payout rose at an annualized rate of 34% over the last three years, more than double the 15% annual clip from the previous five years. Union Pacific raised its dividend 15% last August, then another 15% early this month.


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