Dividends: Shopping for stocks that pay you back

For investors seeking shares that can “withstand the long test of time,” now may be the right moment to pick up top-notch dividend-paying stocks, said Vito Racanelli in Barron’s. Shares in such blue chips as Johnson & Johnson, McDonald’s, and Procter & Gamble have consistently increased their dividends during the past five years, but are still priced at below-average multiples. In the recent market rally, dividend-paying stocks have taken a back seat. “But in the rally’s second phase, the high-quality stocks will be the drivers,” says Nicolas Simar, manager of the ING Euro High Dividend Fund. And if the market “buckles,” these stocks not only will “go down less,” they can offer added protection via their dividend income.

Some companies have cut their dividends this year, but the “better performers are loosening their purse strings and sending more money out to their shareholders,” said Rick Aristotle Munarriz in TheMotleyFool.com. Food supplier Sysco is increasing its quarterly payout by 4 percent, to 25 cents a share, continuing its four-decade “streak” of annual dividend increases. Meanwhile, “shareholders clamoring for ‘mm, mm, more’ out of Campbell’s Soup are getting it”: The company has raised its quarterly disbursement of 10 percent, to 27.5 cents a share. Finally, Nike has doubled its dividend over the past five years—and recently it pumped up the quarterly payout by 8 percent, to 27 cents a share.

When hunting for dividends, be suspicious of any companies offering a percentage in or near the double digits, said Brett Arends in The Wall Street Journal. “It means the stock market expects the payout to be cut, or even—in the case of some smaller companies, such as mining stocks—that management is slowly winding down the business.” General Motors and Washington Mutual, remember, were promising double-digit yields before their stocks effectively “went to zero.” To find quality dividend stocks, Eaton Vance manager Judy Saryan scrutinizes a company’s balance sheet for “potential liabilities.” If you don’t have the stomach to pick individual stocks, look at “equity income” mutual funds, such as iShares Dow Jones Select Dividend Index Fund, which is currently yielding 3.9 percent.

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