My list of the best dividend stocks for May 2015 includes firms with a high dividend yield, supported by a dominant industry position and a healthy financial track record.
In good times or bad, dividends are what investors should look for. Companies that can pay dividends consistently tend to hold a market-leading position in mature industries. Moreover, all of the names on this list sell products or provide services in non-cyclical industries—products that are always in demand—such as consumer staples.
GlaxoSmithKline, with a dividend yield of 5.6%, or $2.60 per share, annually, is a pharmaceutical giant. The firm has drugs in nine therapeutics areas, such as respiratory, dermatology, and treatments related to the central nervous system. GlaxoSmithKline also owns many over-the-counter products like “Nicorette,” “Sensodyne,” and “Tums.”
The strong product lineup and many patent-protected drugs translated into nearly $35.0 billion in revenue and $4.0 billion in net income in 2014. This has also translated into a dividend yield of at least 4.5% over the last 5 years. (Source: GSK Investor Relations, last accessed April 27, 2015.)
What differentiates GlaxoSmithKline from other pharmaceutical giants is its pipeline of respiratory drugs. Asthma treatment drugs like “Advair” and “Flovent” accounted for nearly 33% of all revenue earned in 2014. These innovative and complex drugs are market leaders—allowing the firm to fend off competition from generics and grow its dividend. (Source: GSK Annual Report, February 26, 2015.)
Altria Group Inc. (NYSE/MO)
Altria Group Inc., headquartered in Richmond, Virginia, produces and markets tobacco products. The firm provides investors with a dividend yield of about four percent, or $2.08 per share, annually. In the U.S., Altria commands a 50% market share in tobacco products through sales of popular brand-name cigarettes like “Marlboro,” “Virginia Slims,” and “Benson & Hedges.” (Source: Altria Investor Relations, last accessed April 27, 2015.)
Being a market leader in a mature industry, Altria has established a spectacular dividend track record. For example, over the last five years, Altria grew dividends at 8.6% on average. But strong dividend returns have not only occurred during an economic recovery as dividend payments have gone up at 11% on average over the last 10 years. (Source: NASDAQ, last accessed April 27, 2015.)
Kimberly-Clark Corporation (NYSE/KMB)
Headquartered in Irving, Texas, Kimberly-Clark Corporation is responsible for brands like “Kleenex” and “Huggies.” The firm offers investors roughly a three-percent dividend yield, or $3.52 per share annually in dividend payments.
Kimberly-Clark maintains an impressive dividend track record by generating a stable net income and paying out a large portion of those earnings. For example, over the last two years, the company paid out 55% and 78% of its total earnings as dividends. Moreover, the firm has earned the same net income in the depths of the financial crisis and during an economic recovery, earning $1.8 billion and $1.5 billion in 2009 and 2014, respectively.
A focus on providing cash returns to shareholders has allowed Kimberley-Clark to increase its dividend since 1997; specifically, growing the dividend by 7.4% per year on average over the last half decade. (Kimberly-Clark Investor Relations, last accessed April 27, 2015.)
AT&T, Inc. (NYSE/T)
Telecommunications stalwart AT&T, Inc. has increased its dividend over the last 25 years, and currently maintains a dividend yield of 5.5%, or $1.88 per share, in dividend payments annually. (Source: AT&T Investor Relations, last accessed April 27, 2015.)
AT&T’s track record speaks for itself. It has maintained a dividend yield of above five percent since at least 2010 and has grown its cash balance 600% over the last 10 years. While earnings have been erratic, jumping from $0.66 a share in 2011 to $1.19 in 2014, the dividend payments have been consistent.
Recurring dividend payments stem from AT&T’s dominant position in the wireless business, despite increasing competition from players like Verizon Communications Inc. (NYSE/VZ), T-Mobile US, Inc. (NYSE/TMUS), and Sprint Corporation (NYSE/S).
AT&T maintains a 34% market share in the U.S. wireless business, similar to Verizon, but miles ahead of Sprint and T-Mobile, which hold 15% each. An industry-leading position allows AT&T to continuously spend on new technology, marketing, and customer service—all contributing to strong profitability and long-term defensible dividends. (Source: Statista, last accessed April 27, 2015.)
Risks of Dividend Stocks
Despite the excellent track record of these dividend payers, there are risks with any investment: the possibility to lose money. Stocks with a sustainable dividend can be great long-term investments. However, short-term profitability can dictate how much the company is able to pay out to investors. Always do your research and remember that historical results aren’t always indicative of future performance. Moreover, a single stock shouldn’t make up your entire portfolio; it’s better to spread your risk by owning several names. Also, please note that the information in this article isn’t meant to be considered as a recommendation to buy or as an endorsement of these stocks.