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Five Dividend Stocks That Are a Lock to Boost Payouts (MO, T, CTL, MRK, VZ)


Dividends, especially reliable dividends, are crucial to many investors. And five dividend stocks that are the most likely to maintain or boost payouts in 2010 are Altria (MO), AT&T (T), CenturyTel (CTL), Merck (MRK) and Verizon (VZ).

While nobody wants to own a stock that keeps sliding, it’s just as bad to sit on a stock for years without anything to show for it. That means companies that provide dividends consistently with a strong track record of increasing payouts and providing a hefty dividend yield are a must-have for any investor’s portfolio. But how can you be sure that you’re not just snagging a company with a big headline yield but little chance of maintaining that strong dividend history for years to come?

A great rule of thumb is to look at companies that see a higher yield for their dividend than they do on their five-year bonds. This shows that a company has low debt and will have plenty of free cash to maintain or boost dividends instead of putting that money towards keeping the lights on and paying salaries.

Here are five top dividend stocks that have dividend yields significantly higher than their bond payouts: 
































Tobacco giant Altria (MO) saw its 43rd consecutive dividend increase at the beginning of March, and should continue to provide hefty dividends based on the bond/dividend spread.

AT&T (T) has been increasing its dividends for the past 26 consecutive years. And with a dividend yield that is almost twice the bond yield, expect another hike sometime in 2010. Fellow telecom stock Verizon (VZ) is in the same boat in the yield spread, but marked only its third straight year of increases in 2009. This trend will likely continue looking at the numbers though, even if there isn’t as much historical precedence.

CenturyTel (CTL), which will soon change its name to CenturyLink, is trading near a new 52-week high and has a very healthy dividend yield of 8.2%. With low bond yields, however, it’s likely that these payouts are not a fluke and will continue to stay plush.

Drug icon Merck (MRK) seems to still have its debt under control even after a pricey buyout of Schering-Plough (SGP) in 2009, and should continue increasing its payouts if the bond spread here is any indication.

For those of you unfamiliar with dividend yield, it’s the figure you get when you divide the annualized dividend by a stock’s price. For instance, a company trading at $100 that pays $1 a year in dividends has a 1% yield. A company that trades at $10 with a $1 annualized dividend has a 10% yield. This number shows you the “payback” you’re getting for your investment.

And for those of you unfamiliar with the bond market, the yield on corporate debt tends to work in inverse to risk like so many things on Wall Street. If a company is likely to default on its debt, the yield is higher as an incentive for investors to take on that risk. But when a company is all but guaranteed to pay off its bonds on time, the yield is low because it’s a reasonably safe investment that investors of all stripes are willing to back.

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