Our Favorite Dividend Stocks
Kiplinger's Personal Finance|December 2020
In a wacky year, payouts from our income picks held steady.
NELLIE S. HUANG

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. “We just went through Armageddon, and for the S&P 500, there was no reduction in dividends,” Buckingham says.

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.

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.

Read on for details on each of the Dividend 15. The group is organized into three categories: stocks with long histories of payout increases, stocks with the potential for sizable hikes in dividend payments, and high yielders. Returns and data are through October 9.

Dividend stalwarts. The litmus test for this group of dividend stocks is a minimum of 20 years of consecutive increases. Our seven steady payers have hiked disbursements an average of 53 years in a row.

3M (SYMBOL MMM, $169) stands out with 62 years of consecutive dividend increases. It's 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 the 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.

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 recessionproof: 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.

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