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Five Dividend Darlings For Monday June 23

By Chris Gallant

Tickers in this Article: DSX, MO, PFE, PCU, WTU, JNJ

For decades, blue chip companies with high dividend yields have been referred to as "widow and orphan" stocks because they represented mature, established companies that paid reliable dividends that "widows and orphans" could rely upon to provide a steady income. Utility companies and industrial conglomerates are often placed in this category, but almost any large-cap company that has paid a sizable dividend consistently over the years can be counted on to continue doing so. (To learn more about the benefits of dividends, check out Dividends Still Look Good After All These Years).

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Dividends Don't Rock The Boat
Investing in dividend-paying stocks definitely has its advantages. These stocks generally offer more downside risk protection than growth stocks. The steady cash payout dividend stocks provide give investors peace of mind when the going gets rough, so these stocks typically do not fall as fast or as far as high-flying growth stocks (that typically lack a regular dividend payout). (For more on this, check out How Dividends Work For Investors.).

Here Today, Gone Tomorrow?
A portfolio of stocks with high dividend yields may experience less price volatility than a portfolio built entirely of sexy growth stocks. But, it is important to note that a regular dividend will only help to keep a stock's price stable as long as the dividend payment continues. If a company decreases its regular dividend amount, or ceases it altogether, a stock that was once considered a dividend darling can easily take a nasty tumble.

So, if you are looking to beef up your portfolio with some dividend darlings, usually the best place to start hunting is with stocks that have paid out increasing dividends consistently over a period of years. Generally speaking, the longer a company has paid out a high dividend yield, the more likely it is to continue doing so in the future.

With that in mind, here are five stocks with sizable current dividend yields that have a history of strong dividend growth as well:

Company Dividend Yield (TTM) 5-Year Dividend Growth

Diana Shipping
(NYSE:DSX) 10.7% 9.0%

Altria Group
(NYSE:MO) 5.6% 4.9%

Pfizer
(NYSE:PFE) 7.4% 3.2%

Southern Copper
(NYSE:PCU) 6.3% 7.3%

Williams Coal
(NYSE:WTU) 7.2% 9.4%

Data as of market close on June 20, 2008.

Good Ol' Smokey
Among these five potential dividend darlings, Altria Group has one of the more well-established business models and brand names. Founded in 1919, the company primarily manufactures and sells cigarettes and tobacco products on a global scale. It's an industry that has been known to produce stable long-term rates of growth.

Wall Street analysts consensus estimates peg Altria Group to increase its annual EPS by 10% per year for the next five years. That is no small feat for a company with a hefty market cap of $44 billion, and I think it speaks the quality of Altria's business model. With a low forward P/E of just over 11, and a dividend yield of 5.6%, Altria has all the characteristics of a bargain-priced dividend darling to buy and hold for the long haul. (For more on tobacco companies and other sin stocks, check out A Prelude To Sinful Investing.)

Dividends For The Long Term
Despite the cliché, you don't have to be a widow or an orphan to appreciate the staying power dividend-paying stocks can add to your portfolio over the long haul. For example, while it currently does not have a terribly high dividend yield, consumer products giant Johnson & Johnson (NYSE:JNJ) has been consistently increasing its annual dividend payouts for decades.

In fact, Johnson & Johnson has paid out $1.84 worth of dividends in the last 12 months. A buy-and-hold investor who simply bought the stock in April of 1985 and held it for 23 years would now be getting in excess of a 100% annual return on his or her original investment solely from the annual dividend payout!

To learn more about the compound nature of dividend returns, check out The Power of Dividend Growth.

By Chris Gallant

Chris Gallant is an analyst and contributor for Investopedia. Chris graduated from the University of Alberta School of Business with a major in finance. Prior to joining Investopedia, Chris spent time working with the Alberta Ministry of Finance, taught Business classes at the undergraduate level and helped manage a charitable equity fund for the University of Alberta.

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