THE KIPLINGER DIVIDEND 15 UPDATE OUR DIVIDEND PICKS HOLD UP IN A BAD MARKET

Tweaks to the list this year focus on growing payouts.

- NELLIE S. HUANG

The past year has been a doozy for stock and bond markets. Twelve months ago-the last time we did an extended review of the Kiplinger Dividend 15, the list of our favorite dividend stocks-interest rates were low, the S&P 500 index was hitting new highs, and the Bloomberg U.S. Aggregate Bond index was treading water. Today, the stock market is in the gutter, short-term interest rates have climbed three percentage points, and the Agg is set to post its worst-ever annual return.

The flip in the markets and interest rates calls for a strategy shift in dividend-stock investing, says Ross Frankenfield, a managing director at Harbor Capital Advisors. When interest rates were low, investors were keen to reach for yield and buy stocks that sported high yields. But a Harbor study shows that although those shares do well when interest rates are low, they tend to underperform when rates are rising. "It's now important to focus on high dividend growers rather than high yielders," says Frankenfield.

Michael Clarfeld, a portfolio manager at ClearBridge Investments, agrees. A focus on high-quality companies that are increasing dividends regularly, he says, is key these days. Such firms tend to have pricing power, which helps them maintain profitability and raise payouts even when the economy is slumping. "That's critical today," he says. "It's not about income. It's about dividend growth."

We're keeping that in mind as we review the roster of our favorite dividend-paying stocks. Over the past 12 months, the Dividend 15 delivered an average total loss of 6.8%, compared with a 16.0% loss in the S&P 500 stock index. Ten stocks beat the S&P 500, four with a positive return: AbbVie, Lockheed Martin, Enterprise Products Partners and Johnson & Johnson. Another five lagged the S&P 500, including Blackstone, Verizon Communications and Emerson Electric.