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Our Favorite Dividend Stocks
These income-paying picks clobbered the broad market over the past 12 months.
Ryan Ermey

Income investors love dividend stocks for their regular payouts; any stock-price appreciation is just gravy. The Kiplinger Dividend 15, the list of our favorite dividend-paying stocks, delivers on the first front, yielding 3.4%, on average, compared with a 1.9% yield for Standard & Poor’s 500-stock index and a 1.7% yield for the 10-year Treasury bond. What’s more, over the past year, our list has slathered on the gravy, too, returning 13.6%, on average, counting dividends and price appreciation, compared with a 4.3% return for the S&P 500. (Prices and other data are as of September 30.)

Big gains don’t come without some strings attached. Like many stocks that have ridden this record-long bull market, some of the names on our list appear to be richly valued now. And although dividends buttress returns when a stock’s price slides, pricey stocks could take a big hit in the event of a stock market plunge. Perhaps more salient for dividend investors, major boosts in the share price diminish a stock’s yield, as is the case with Blackstone Group and Realty Income—two stocks originally chosen for our list because, among other things, they historically provided yields above 4%. Although they’ve slipped below that bar, we’re not yet ready to jettison them for performing too well, and we believe that their yields can return to historical averages. We’re keeping an eye on them, but we’re making no changes to the list at present.

The Dividend 15 are divided into three categories: stocks with a long history of stable dividends, stocks with the potential for rapid growth in their payouts, and high yielders.

Dividend stalwarts.

Stocks in this group have increased their dividend for 20 or more consecutive years. 3M boosted its payout by 5.9% this year, surpassing the requirement by a not-so-slim margin of 40 years. The firm, which makes an array of products involving chemical coatings, sealants and ad hesives, has posted disappointing earnings of late, and the stock has surrendered 20% over the past 12 months. Slowdowns in sales of consumer electronics and autos were partly to blame, says Mairs & Power Growth fund manager Kevin Earley. 3M is used to withstanding cyclical challenges like these, he says, and is restructuring to cut costs and expand margins. He expects the company to continue to raise its payout modestly as it gets earnings back on track.

AIR PRODUCTS AND CHEMICALS provides a variety of industrial gases to health care, technology, energy and industrial firms across the globe. In recent years, the firm has slashed costs, shed less-profitable businesses and invested heavily in growing markets in South America and Asia. The shares soared 36% over the past year and currently yield 2.1%. Analysts at investment research firm CFRA say Air Products has ample yearly free cash flow (cash left over after spending to maintain and expand the business) to continue boosting its payout.

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December 2019

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