The first month of 2012 was the stuff traders dream about: The Dow’s 3.4% climb and the S&P’s 4.4% jump marked the indices’ best January in 15 years!
It was great while it lasted, but as 2011 proved, they all can’t be winners. The fourth-quarter earnings season has been notably mixed, Europe still has a ways to go in settling its myriad debt issues, and while the U.S. economy is showing hints of a recovery, it’s on shaky legs. All that spells the potential for future volatility.
Of course, one of the best and well-known ways to weather wobbly markets is through dividend stocks. Strong, stable companies trying to use excess cash by rewarding shareholders have become the go-to guys for consistent income.
But with 10-year Treasuries yielding around 2%, investors need a reason to take on the extra risk stocks carry. That’s why income investors are best off targeting companies with high, consistent yields. And in the best-case scenarios, those stocks also will have plenty of upside potential.
This month, our experts have targeted six stocks they believe can provide stable, sizable income — and in some cases, even capital gains. Here are our six top dividend stocks to buy now.
Top Dividend Stocks #1 and #2 – CWT, AWR
Recommended by Richard Band, Editor, Profitable Investing
Water utilities offer an excellent combination of safety and yield. Two in particular — California Water Service (NYSE:CWT) and American States Water (NYSE:AWR), also based in California — have raised their dividends, year after year, for decades. What’s more, both of these pint-sized outfits carry a significantly lower price tag, in terms of estimated 2012 earnings, than some of the industry’s larger players. That’s an invitation for a takeover bid, at perhaps a 15%-25% premium over today’s share price.
Buy CWT up to $19. Current yield: 3.4%. Buy AWR up to $35. Current yield: 3.1%.
Top Dividend Stock #3 – JNJ
Recommended by Charles Sizemore, Editor, The Sizemore Investment Letter
It’s been a rough couple of years in the American capital markets, and reputations have been tarnished. The government lost its AAA credit rating in 2011 thanks to its inability to balance its books. Perhaps not surprisingly, there are only four companies in the United States of America that still maintain a credit rating that high: Microsoft (NASDAQ:MSFT), Exxon Mobil (NYSE:XOM), Automatic Data Processing (NASDAQ:ADP) and my top dividend stock pick, Johnson & Johnson (NYSE:JNJ).
It’s hard to find a company with a more stable business than Johnson & Johnson. As a maker of popular consumer brands like Band-Aid, Aveeno, Neutrogena and Tylenol, as well as pharmaceutical and medical devices, Johnson & Johnson is about as close as you can come to a recession-proof stock.
JNJ trades for just 12 times FY14 earnings and yields 3.5%. And yes, before you ask, Johnson & Johnson’s dividend is growing. In fact, the company has raised its dividend for 49 years in a row. In 2011, the company raised its dividend 6%. This was after raising it 10% the year before.
As investors, it is impossible to predict with any accuracy every bend and twist in the stock market. The beauty of an investment like Johnson & Johnson is that you don’t have to. At current prices, it yields more than what you can hope to get in the bond market, and the dividend grows every year.
JNJ is one of Charles Sizemore’s “Dividend Stocks to Buy and Forget.” Get details on three more here.
Top Dividend Stock #4 – MCD
Recommended by Louis Navellier, Editor, Blue Chip Growth
McDonald’s Corp. (NYSE:MCD) announced fourth-quarter earnings on Jan. 24, and the results were even better than expected. Despite being the world’s leading fast-food company with 32,400 restaurants in more than 100 countries, McDonald’s continued to grab market share as it revamped everything from its franchises to its menu to its service. In the face of economic uncertainty, money-conscientious customers across Europe and the United States fueled a 5.6% jump in global comparable sales for 2011.
For the fourth quarter of 2011, sales climbed 10% year-over-year to $6.82 billion. This was largely in line with the $6.81 billion consensus sales estimate. Similarly, net income advanced 11% year-over-year to $1.38 billion, or $1.33 per share. Street analysts expected earnings of $1.30 per share, so McDonald’s yielded a 2% earnings surprise. Looking in the near future, McDonald’s expects this growth to persist, forecasting global January sales to grow between 5.5% and 6.5%.
McDonald’s also is ramping up expansion in China, planning to open 700 new stores in the country by 2013. The expansion will lead to the fast-food chain operating more than 2,000 locations in China.
In my opinion, MCD has all the right things going for it, from a great ROE to strong sales and earnings to an impressive history of dividend growth. And don’t forget its 31% 2011 returns versus the S&P 500’s negative gains.
Buy MCD up to $109. Current yield: 2.8%.
Top Dividend Stock #5 – MO
Recommended by Louis Navellier, Editor, Blue Chip Growth
Altria Group (NYSE:MO) is a Blue Chip Growth Buy List veteran that I’ve kept for its legendary dividend payout — representing a 5.8% dividend yield. On Jan. 27 Altria announced solid fourth-quarter operating performance. To start, net sales advanced 3% to $6.13 billion. Analysts expected revenues to decrease to $4.23 billion, so Altria yielded a 45% sales surprise.
Now, earnings did decline 10% year-over-year to $836 million, but that was including a number of one-time restructuring and impairment charges, totaling $221 million. As a tobacco company, Altria has to deal with a tough regulatory environment, so these losses are more acceptable than with other companies. In fact, excluding these charges, the company’s adjusted earnings per share rose 50 cents. This topped analyst estimates of 49 cents per share by 2%.
The company also is shaking up its executive lineup. First, Martin Barrington will replace Michael Szymanczyk as Chairman and CEO; Szymanczyk will remain in a consulting position. Also, David Beran has been elected to serve as the company’s new president and COO. Looking ahead, the company has revised its 2012 earnings guidance up to a range of $2.17 to $2.23 per share. This tops the Street view of $2.19 per share. I’m pleased with this earnings announcement, so I reiterate my strong buy recommendation for MO.
Buy MO up to $31. Current yield: 5.8%.
Free from Louis Navellier: 7 Dividend Kings That Reign Supreme
Top Dividend Stock #6 – DUK
Recommended by Bryan Perry, Editor, Cash Machine
Duke Energy (NYSE:DUK) — a stalwart holding within the utility sector that provides to more than 4 million residential and commercial customers in the Carolinas, Ohio, Indiana and Kentucky — pays one of the highest yields in its sector, at 4.7%.
The company is set to grow 2012 revenues by 6.5%, to $14.75 billion, and earnings per share are forecast to be $1.41. DUK has a market cap of $28 billion and pays an annual dividend of $1 per share, with a payout ratio of 64%.
And leave no doubt, the upside breakout in September was accompanied by heavy volume, verifying that a new uptrend is in place, and therefore, the stock should be bought. These are all great numbers for a reliable income investment in a market that has investors guessing.
Buy DUK up to $22. Current yield: 4.7%.
Free from Bryan Perry: 5 Bulletproof Sectors for 2012 — Plus, 14 High-Yield Investments