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4 Dividend Stocks You Can Actually Count On

Posted: Nov 17, 2008 10:02 AM by Ryan Freund

Tickers in this Article: KO, MCD, MMM, JNJ

In uncertain and highly volatile times like these, it is important to make sure your portfolio is well diversified with a healthy selection of investments. In particular, dividend paying stocks can provide significant stability to your portfolio, primarily due to a dividend's inverse relationship to the price-per-share. Furthermore, dividends can bring you current income or the opportunity to re-invest, letting compound interest work it's magic. Before you go out and buy a stock based on its dividend, though, there are several things you must be on the look-out for.

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The Incredible Disappearing Dividend
With all the carnage in the stock market, especially in the financial sector, dividend yields have never looked so attractive. In fact, there are over 150 companies - valued at over $500 million market capitalization - that have annual dividend yields greater than 10%. Wow, what a good time to be investing!

Not so fast.

You see, the dividends listed (as well as most other company-specific information) on most websites are based on a snapshots of the past; they do not usually reflect the most current data available. You have to be very careful not to let a stated dividend yield sway your stock purchases. Finding the latest dividend news or payout for a specific stock isn't too difficult, and it’s well worth your time. (To get started, read How And Why Do Companies Pay Dividends?)

Be wary of High Yields
Even if you do your research and find that the dividend yield is still being maintained, double-digit dividend yields should be raising red flags for any investor. The old adage “if it looks too good to be true, it probably is” is incredibly pertinent here, because high dividend yields are often unsustainable and are likely to be cut. No one likes it when a dividend is cut; and the stock is punished accordingly. (To learn some of the telling factors that can help you avoid losses, read Is Your Dividend At Risk?)

If the dividend yield is more than 10%, as is the case with the 150 I mentioned, it's likely too good to be true. The bad news is that there are a lot of dividend "honey-pots" out there for investors who do not take the time to perform adequate research. The good news is that there are also a lot of well-known, venerable companies that not only pay a good dividend, but have had a steady long-term dividend policy in place for decades. Let's take a look at some of my favorites.

Four Stalwarts You Can Trust

Company	Dividend Yield*	Year Founded	Sector
Johnson & Johnson (NYSE:JNJ)	2.9%	1885	Healthcare
3M (NYSE:MMM)	3.1%	1902	Conglomerate
McDonald's (NYSE:MCD)	3.6%	1948	Services
Coca-Cola (NYSE:KO)	3.3%	1886	Consumer Goods
* As of stock market close on 11/13/08

History of Rewarding Shareholders
Are these yields exceptionally high? No, but each and every one of these companies has an exceptionally long history of rewarding shareholders with steady dividends. For example, McDonald's has been paying dividends consecutively every single year since 1976, Johnson & Johnson since 1972, Coca-Cola since 1920 and 3M since 1916.

It's important to note that not only have these four companies paid steady dividends for many decades, they've been increasing them consistently. McDonald's has raised its dividend each year since 1976 - the year it began paying dividends. Johnson & Johnson has increased its dividend since the inception of its dividend in 1972. Coca-Cola has increased its dividend in each of the past 43 years. Lastly, we have 3M, which has increased it's dividend steadily for 50 years straight; longer than any of the other three.

Slow and Steady Wins This Race
Sure, these stocks aren't high-flying growth stocks with the potential to make you an instant millionaire. But what they lack in flash, they more than make up for with consistency and stability. Peace of mind is a hard asset to come by these days, and you will certainly sleep better at night knowing that these high yielding stalwarts are bracing your portfolio against losses.

Find out how this "first love" still holds its bloom as it ages, in Dividends Still Look Good After All These Years.

By Ryan Freund

Ryan E. Freund is the Founder and Managing Member of Freund Investing, a Professional Investment Advisor firm based in Massachusetts. Freund has been active in the investment field for nearly a decade, and has been featured in a wide variety of online media publications, including: Business Week, Reuters, CBS Marketwatch, The Motley Fool, Yahoo! Finance and, of course, Investopedia.

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