The Kiplinger Dividend 15, the list of our favorite dividend-paying stocks, doled out plenty of payout love in its first year, with an average yield of 3.7%.
To make it into our lineup, dividend stocks had to first beat the 2% average yield of the Standard & Poor's 500-stock index. We then looked for firms that are leaders in their industry and that have solid prospects for expanding their sales and profits, while also generating enough cash to pay investors. And we aim to avoid dividend traps -- stocks with high yields but weak underlying businesses and poor prospects.
We've made just one change in the list, pulling CVS Health ( CVS ). Although the stock has performed well, it broke its streak of dividend increases , which was one reason we recommended it. We'll introduce its replacement in a minute.
We're keeping the rest of the Kiplinger Dividend 15, which we divide into three groups, for their dividend stability, briskly growing payouts or high yields. Find a dividend stock that suits your needs, or select a mix.
Dividend Stalwart: 3M
Annual dividend: $5.44
Consecutive years of increases: 60
Five-year dividend growth rate: 16.5%
One-year total return: -6.5%
A 60-year record of increasing dividends looks poised to continue at 3M ( MMM , $198), even though the stock has fallen 6.5% over the past year. The retrenchment was to be expected, considering that the stock jumped 34% in 2017 alone. According to analysts at research firm CFRA, 3M's investments in research and development have dampened earnings growth in 2018, although it should be positive in the long term. Given the safety of 3M's dividend, its thousands of patents and its commitment to research, the stock deserves its place in the Dividend 15.
Dividend Stalwart: Air Products & Chemicals
Annual dividend: $4.40
Consecutive years of increases: 35
Five-year dividend growth rate: 9.2%
One-year total return: 6.0%
Air Products & Chemicals ( APD , $158) serves customers in the energy, industrial, health care and consumer markets. The company is the largest supplier of hydrogen to petroleum refineries, which use the gas to upgrade heavy crude oil. Many of its customers sign contracts for 10 to 20 years, giving the company long-term stability.
The firm's spending on plant and equipment should bear fruit in future years, especially in Europe, the Middle East and Africa, where Air Products has seen 24% sales growth over the past 12 months. The company raised its yearly payout nearly 16% in April.
Dividend Stalwart: Emerson Electric
Annual dividend: $1.94
Consecutive years of increases: 61
Five-year dividend growth rate: 3.4%
One-year total return: 15.6%
Emerson Electric ( EMR , $72) was established in St. Louis in 1890, but the company isn't rooted in the past. Automation is the future, and Emerson's hardware and software help make production more efficient for industries ranging from oil and gas to automobiles. Emerson also has a big group of well-known commercial and consumer products, including heating and air conditioning units, lighting and electrical materials. Analysts expect earnings growth of 17.4% for the fiscal year that ends in September 2019, and 15.4% for the following year -- enough to keep a 61-year record of dividend hikes on track.
Dividend Stalwart: Exxon Mobil
Annual dividend: $3.28
Consecutive years of increases: 36
Five-year dividend growth rate: 5.4%
One-year total return: 2.6%
You might associate Exxon Mobil ( XOM , $81) with gasoline, but it's also a reliable engine of dividend growth.
The world's largest publicly traded oil and gas company has averaged a 6.3% dividend hike for the past 35 years, even through lean times for the energy sector. Aided by rising oil prices this year, Exxon Mobil generated cash flow from operations of $7.8 billion in the second quarter, up from $6.9 billion a year earlier. The company has invested heavily in the Permian oil basin, particularly in pipelines there. Despite big capital outlays, Exxon Mobil remains committed to its generous dividend.
Dividend Stalwart: Johnson & Johnson
Annual dividend: $3.60
Consecutive years of increases: 56
Five-year dividend growth rate: 6.4%
One-year total return: 0.4%
Like all drug companies, pharmaceutical powerhouse Johnson & Johnson ( JNJ , $134) comes with risks -- in this case, legal battles involving its talcum powder and surgical mesh products. Nevertheless, the company is so broadly diversified that it's not reliant on one drug or even one product segment. "We see solid pharmaceutical growth, while consumer products and medical devices continue to rebound and aid sales growth," say CFRA analysts.
The company's free cash flow (cash left over after spending to maintain and expand the business) covers its dividend by a wide margin, meaning J&J's 56-year streak of raising dividends is unlikely to end soon.
Dividend Stalwart: Procter & Gamble
Annual dividend: $2.87
Consecutive years of increases: 62
Five-year dividend growth rate: 3.6%
One-year total return: -11.2%
You've probably used something from Procter & Gamble ( PG , $79) today, whether it's laundry detergent (Tide), razors (Gillette) or cough medicine (Vicks). If you're a shareholder, you no doubt appreciate P&G's dividend record: It has paid dividends for 128 consecutive years and raised them for the past 62.
Despite a strong stock market, however, this stock has languished. P&G has been challenged by growing competition and rising materials prices. But Morningstar sector director Erin Lash argues that the firm's efforts to reduce costs and increase prices make it a good buy. The stock is cheap now relative to earnings and sports a 3.6% yield. "We think investors would be wise to stock up," Lash says.
Dividend Stalwart: Walmart
Annual dividend: $2.08
Consecutive years of increases: 45
Five-year dividend growth rate: 2.0%
One-year total return: 12.5%
Walmart ( WMT , $95) is best known for its vast number of outlets peddling low-cost consumer goods. But Walmart is also making big strides in e-commerce, including buying a 77% stake in Indian e-commerce giant Flipkart in August. Walmart's U.S. e-commerce sales soared 40% in the fiscal quarter that ended July 31, according to Zacks Investment Research. The $16 billion Flipkart deal will slow earnings in the short term, but Walmart has plenty of cash to pay -- and increase -- dividends.
Dividend Grower: AbbVie
Annual dividend: $3.84
Consecutive years of increases: 5
Five-year dividend growth rate: 19.1%
One-year total return: 3.1%
AbbVie ( ABBV , $91), a pharmaceutical company with several blockbuster patents and a strong group of new products in the pipeline, is the newest member of the Kiplinger Dividend 15 and the replacement for CVS.
AbbVie expects sales of Humira, used to treat rheumatoid arthritis, psoriasis and Crohn's disease, to approach $21 billion by 2020. The firm is developing a drug to treat glioblastoma, an aggressive form of brain cancer, and another to treat multiple myeloma, a blood cancer.
AbbVie has paid dividends only since 2013, when it was spun off from Abbott Laboratories. Since then, the payout has grown at a five-year annualized rate of nearly 18%, with a 40% bump in the annual payout in 2018.
Dividend Grower: Home Depot
Annual dividend: $4.12
Consecutive years of increases: 10
Five-year dividend growth rate: 21.4%
One-year total return: 19.4%
You may have noticed that the parking lot at Home Depot ( HD , $192) is nearly always jammed on weekends, and so have investors. Our top performer, the stock has gained 19.4% over the past year, pushing the share price to 19 times estimated earnings of $10.25 a share for the fiscal year ending January 2020. That compares with a price-earnings ratio of 16 for the S&P 500 based on calendar 2019 estimates. The high share price has pushed Home Depot's dividend yield down to 2.1%. Nevertheless, the firm raised its dividend nearly 16% in 2018, to $4.12 a share, on top of last year's 29% hike.
Dividend Grower: Lockheed Martin
Annual dividend: $8.80
Consecutive years of increases: 17
Five-year dividend growth rate: 10.6%
One-year total return: 4.5%
Lockheed Martin ( LMT , $328), the largest military contractor in the world and the maker of the $89 million F-35 fighter jet, is benefiting from a surge in U.S. military spending. The company has delivered about 300 of the next-generation fighters since production began in 2006, and it signed a contract in September to deliver another 141. Lockheed Martin's large array of defense products, including Sikorsky helicopters, makes it a remarkably stable business with plenty of runway to continue healthy dividend boosts.
Dividend Grower: Texas Instruments
Annual dividend: $3.08
Consecutive years of increases: 15
Five-year dividend growth rate: 20.7%
One-year total return: 11.8%
The tech sector is second only to financial services in the dollar amount of dividends it pays, and Texas Instruments ( TXN , $101) is a good example, raising its dividend 29% in 2017 and 17% in 2018. The company is the world's largest producer of analog microchips, which convert sounds and other real-world signals into digital inputs. Although the chip business is highly competitive, Texas Instruments' chips are hard to switch out once they are embedded in a product's design.
The company is seeing fast sales growth in the automotive market. And its chips inform a growing number of machines and devices that make up the Internet of Things -- the web of products, from refrigerators to earth movers, connected to the internet.
High Yield: Blackstone Group
Annual dividend: $2.32
Consecutive years of increases: 1
Five-year dividend growth rate: 20.3%
One-year total return: 12.3%
Blackstone Group ( BX , $35) has returned 12.3% over the past year and still sports a 6.7% yield. The asset manager has four divisions, focused on funds that invest in private companies, funds that invest in real estate, hedge funds and fixed-income funds. From 2014 through 2017, Blackstone's fee-earning assets under management have grown at an annual rate of 15.7%, to $335.3 billion.
Its quarterly payout is variable and depends on what the firm earned that quarter. In the first three quarters of 2018, the payout ranged from 85 cents per share to 35 cents per share.
High Yield: Enterprise Products Partners, LP
Annual distribution: $1.73*
Consecutive years of increases: 14
Five-year distribution growth rate: 4.6%
One-year total return: 13.3%
Enterprise Products Partners, LP ( EPD , $29) is a master limited partnership that provides pipelines, processing and storage for oil and gas. Enterprise has a 50,000-mile pipeline network that connects to every major U.S. shale play, and it is seeing rising demand for liquid natural gas from both chemical and refinery businesses. Pipeline companies typically enter into long-term agreements with customers. Poaching by competitors is rare because it's hard to build another pipeline in an area where one already exists. Enterprise fits well into our high-yield category, with a 6.1% yield. Note: MLPs issue K-1 forms that can complicate your tax filings.
*Distributions are similar to dividends, but are treated as tax-deferred returns of capital and require different paperwork come tax time.
High Yield: Realty Income
Annual dividend: $2.65
Consecutive years of increases: 24
Five-year dividend growth rate: 3.8%
One-year total return: 2.6%
Realty Income ( O , $56) was in the doghouse early in 2018 but has inched off the pooch porch. Despite an 11% drop from the start of 2018 through April, the shares have managed a 2.6% gain over the past year, including dividends. The real estate investment trust (REIT), which pays dividends monthly, has a portfolio of properties that tend to grow slowly, but steadily, in value. With 5,483 properties under long-term leases in 49 states and Puerto Rico, Realty Income has broad diversification. Top tenants by rental revenue are Walgreens ( WBA ), FedEx ( FDX ) and Dollar General ( DG ). Since 1996, overall occupancy hasn't dipped below 96.6%.
High Yield: Verizon Communications
Annual dividend: $2.41
Consecutive years of increases: 12
Five-year dividend growth rate: 2.6%
One-year total return: 16.0%
Verizon Communications ( VZ , $54) is North America's largest wireless carrier in a hotly competitive market. A big investment in its Fios network should start to pay off over the next few years. Verizon has also rolled out Oath, a division that will include Yahoo News, HuffPost, Engadget, TechCrunch, Yahoo Finance, Yahoo Sports and Tumblr, marking a foray into online content and advertising that could provide significant growth over time. For now, the shares yield a plump 4.5%.