The market landscape is plenty changed just a few months into 2013. The major indices have all advanced by double digits, the 10-year Treasury has ticked up from south of 2% to about 2.6% in short order, and a number of supposed stinkers — Hewlett-Packard (HPQ) and Best Buy (BBY), to name a couple — have made market pundits eat their hats.
What hasn’t changed is that dividend stocks are still in style, and that they’re still one of the best ways to build toward your retirement.
And short of a massive shift in the winds, they’ll stay that way.
To help you out in your hunt for stable, long-term investments, we’re taking a look at a number of dividend stocks that meet a few important criteria you’d want for the long haul. They’re long-standing dividend payers (in fact, a minimum of 10 consecutive years of increases, not just payouts), they yield more than today’s 2.6% T-Note, and they’re not trading at a terribly frothy valuation (P/Es are capped at 20).
Here are five that make the grade, listed by yield:
Air Products and Chemicals
Air Products & Chemicals (APD) gives the world gas, but don’t worry — we’re mostly the better for it.
APD serves customers in the food, beverage, healthcare and energy industries, supplying gasses like helium, nitrogen and oxygen, as well as specialty products like epoxies and polyurethane adhesives. Not sexy.
What will open your eyes is that Air Products ranks among our Dependable Dividend Stocks — is a true dividend champion, having raised raising its dividend every year for more than three decades.
Despite a recent earnings blip in 2012, APD remains the global leader in its field servicing critical, growing industries like liquified natural gas and flat-panel displays — in other words, this is a company that hasn’t just rested on older technologies, but one that keeps finding a way to still be relevant … even necessary.
The company’s current cash situation is fine, too, with $400 million in the bank as of the most recent quarter and levered free cash flow of $520 million in the trailing 12 months.
Expect ADP to continue its streak of making investors a little happier year after year.
There’s nothing novel about this pick. McDonald’s (MCD) is one of the most recognizable brands on the planet, and one of the most consistent dividend payers out there — the MCD payout has improved every single year since the company first started writing checks in 1976.
Yet despite this titan’s size — the fast-food company is worth $100 billion by market capitalization and did $27 billion in revenues last year — McDonald’s is extremely nimble. For decades, it has tinkered and tweaked its menu not only to American consumer tastes, but numerous international palates, too … plus it also adjusts well to global food price trends. (The McRib isn’t a permanent fixture for a reason, you know.)
That’s the kind of flexibility that not only will keep you around in perpetuity, but will keep the money rolling in — the company boasted nearly $4 billion in free cash flow in 2012, and MCD currently sits on $1.9 billion in cash and short-term investments.
Leggett & Platt
Here’s a gem of a company that you’ve probably never come across in your day-to-day. Leggett & Platt (LEG), founded in 1883, designs, manufactures and sells engineered components for home and industrial use — in other words, things like mattress springs and coils, carpet underlays and landscaping filter and drainage fabrics.
That doesn’t sound exciting, but Leggett’s product lines put it in a great space as the economy (and importantly, the housing market) continues to show signs of recovery. Its trajectory is already attractive — revenues increased by 21% from 2009 to 2012, with earnings more than doubling over that same period.
Dividend investors will like its great cash situation — free cash flow of $269 million easily covered its 2012 dividend payment, and it has another $450 million in the bank. That’ll help LEG extend its 41 consecutive years of improving its quarterly payout.
ConocoPhillips (COP) is an “upstream” energy company, meaning it’s involved in the exploration and production of oil and natural gas.
The company, which spun off its refining operations via Phillips 66 (PSX) in May 2012, is hip-deep in the exploration of the Bakken Shale, Permian Basin and Eagle Ford oil fields in North America — all of which are expected to bring the U.S. a little closer to energy independence well into the future.
COP also has spun off underperforming or non-core assets, returning the cash back to shareholders in the form of stock repurchases. Also, ConocoPhillips was able to come up with $1 billion in free cash flow last year — after spending just more than $14 billion in capital expenditures. Add in 12 consecutive dividend increases and uninterrupted payments since 1934, and you have another dependable stock in a thriving industry.
Make way for Lockheed Martin (LMT), which is celebrating its 10th straight year of dividend increases.
Lockheed is a defense industry giant, dealing primarily in security infrastructure and aerospace. The company is primarily engaged in U.S. government work, and while it has plenty of commercial applications to keep it busy, the fact that national defense is always going to be a priority can make you sleep well at night … well, at least as far as LMT’s prospects are concerned.
Despite defense cutbacks, Lockheed has managed to slowly but surely grow revenues by about 7.5% over the past five years to 2012’s $47 billion. That helped generate $2.7 billion in free cash flow, which covered its dividend more than two times over. Best of all for current buyers, LMT is attractively priced at just more than 12 times earnings.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.