It’s harder than ever out there for income investors. You’re lucky to get a 1% yield in safe havens like savings accounts and certificates of deposit. And as for bonds, well, they’re expensive and don’t offer much in the way of interest. Heck, just last week the yield on the benchmark 10-year Treasury note closed at an all-time low of 1.70%.
That has created tremendous interest in dividend stocks (no pun intended), and it’s easy to see why. The S&P 500 currently sports a dividend yield of 2.13%, up from 1.86% a year ago — and far ahead of the 1.75% offered by the 10-year note.
Stock prices, of course, are volatile, and a further downdraft in the broader market could easily wipe out any gains from the income portion of your equity holdings. After all, a dividend stock yielding 5% won’t do you much good if the share price tanks 10%.
Dividend investors face other significant risks. A deterioration in the economy or in an individual business could force management to cut or even suspend its payouts. (With the ensuing selloff in the company’s stock only adding to the pain of a suddenly diminished or discontinued income stream.)
It’s also a worry that high dividend yields often are a sign of a sick stock. As with bonds, dividend payers’ yields and prices move in opposite directions. When a dividend-paying stock goes into freefall, its yield shoots up. If there’s a serious problem driving the selloff, investors risk a dividend cut, suspension or more share-price weakness.
So what’s a dividend investor to do?
A good place to start looking for dependable dividend stocks is the S&P Dividend Aristocrats. InvestorPlace maintains a list of these big, blue-chip companies, which have hiked their dividends every year for at least 25 years. That sort of redoubtable history produces confidence in these companies making good on their payouts going forward, so we first singled out the Aristocrats.
Next, we cut the list of dependable dividend payers down to stocks with yields greater than that of the 10-year Treasury, so we’d be left only with names that beat that benchmark on an income basis.
Finally, to make sure the dividend yields weren’t inflated by share-price weakness, we culled the list to stocks that are outperforming the S&P 500 year-to-date.
That left us with 12 bond-busting, market-beating, dependable dividend payers. Here’s a look at their yields and year-to-date share price performance as of May 23:
|Illinois Tool Works||ITW||2.6%||+16%|
While some of the dividends above might not be the sexiest — and some of the companies’ businesses themselves, like industrial manufacturer Illinois Tool Works (NYSE:ITW), definitely aren’t — they’re certainly among the most reliable.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.