Dividend stocks are on fire right now, and for good reason. Interest rates are pathetic, and are likely to stay that way for a long time. Why settle for a 1% return in a savings account or CD when you can get 3%, 4% and more in dividend yield? The stocks tend to be less risky, and dividends are a great way to measure a corporation’s health. After all, you can’t fudge a dividend.
Dividends are basically a profit-sharing plan for shareholders. The companies you invested in will pay a portion of the cash they generate directly to you. Pick the right companies and you get both income and capital appreciation, a powerful way to build your wealth.
Be careful, however. Not all dividend stocks are created equal, and a good dividend does not necessarily mean a good investment. (High yields can actually be a red flag in some cases). You want to look at a variety of factors when investing in dividend stocks, such as cash flow, to make sure the dividend is sustainable. Here are seven stocks that meet my strict criteria right now:
General Mills (NYSE:GIS) has a century old history of steady or rising dividends and a decent valuation. The current yield is a solid 3.3%, and cereal isn’t going anywhere anytime soon. With that reliable dividend, GIS looks to be a safer investment that will continue to put money into your pocket.
Johnson and Johnson (NYSE:JNJ) is an extremely well-known and popular brand, and the company has continued to do well despite the slow economy. It is rock solid financially – one of only four companies on earth to hold a AAA credit rating! You have to bring in money to pay out dividends, and management has continued to generate over $10 billion in free cash flow and more than $65 billion in sales. JNJ yields 3.5%, but I wouldn’t be surprised to see the payout increase.
General Electric (NYSE:GE) struggled during the financial meltdown in 2008, but since then, business has stabilized and the dividend has continued to increase. Today, GE yields 3.6%, which is much higher than Treasury bonds. The company has a 30-year history of increasing dividends annually, and I expect that to continue.
Vodaphone Group PLC (NYSE:VOD) is the second-largest telecommunications company in the world, trailing behind China Mobile. You may not have heard much about them, but they actually own 45% of Verizon (NYSE:VZ) Wireless. So even if they struggle because of Europe’s economy, Verizon Wireless helps to make up their sales. This is a company that is going to continue to grow, due to the ever-expanding global market. VOD is a good, long-term buy with a current yield of 4%.
ConocoPhillips (NYSE:COP) has been steadily increasing its dividends for the past six years, and the yield is currently at 4.6%. Also interesting, COP reached an agreement with Sinopec to study shale gas development in China, which could lead to some nice profits. China has huge shale potential and high gas demand. COP has shifted around a bit, but I like the company’s position now as we begin 2013.
BP (NYSE:BP) is an energy giant with an attractive 5.2% dividend yield, one of the highest in its industry. The company hasn’t completely bounced back from the 2010 oil spill, but that makes the stock relatively cheap, which increases the yield. Importantly, the company has a history of increasing that dividend, and with production expected to increase through 2014, I like BP right now.
People’s United Financial (NASDAQ:PBCT) is one of the few financials unaffected by the fiscal cliff and our “bungee jump” over the edge and back up. PBCT is a solid commercial banking business with a sweet 5.3% dividend yield. Third-quarter earnings grew 28.5% over the previous year ($0.18 per share versus $0.14), and management is now aiming at buying back a lot of its stock, which is also a positive sign.
So there you have it; seven dividend stocks that are burning up. I expect the market to do pretty well in 2013, though economic growth is likely to remain sluggish. That means the right dividend payers look set to outperform and give you a steady stream of income at the same time.