When Experts Look for Dividend Stocks, THIS Is Where They Go

The Best Dividend StocksThe Best Dividend Stocks?

The current stock market climate is cautious and unforgiving for companies that report bad news. The lack of leadership from momentum stocks and their high risk makes the idea of accumulating dividend stocks a viable avenue for investors at this time.

You can really never go astray adding some big dividend stocks to your long-term or short-term portfolio to diversify and generate dividend income. And if you need a tax-efficient income stream but can’t live off the low interest rates offered by bonds, the buying of dividend stocks makes even more sense.

When I’m talking about adding dividend stocks, I’m referring to the large-cap dividend-payers that have a long history of operations and stability. These dividend stocks are the kind your parents or grandparents held in their portfolios.

The reality is that while there will be near-term volatility in the share prices of these dividend stocks, these companies will likely generate consistent long-term returns.

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Some of the top dividend stocks are found on the Dow Jones Industrial Index—a barometer of mostly old economy blue-chip stocks. Sure, you already know about it. It sounds like a cliché. But the Dow Jones is still the first place experts turn to when they’re looking for top dividend stocks—and for good reason.

The index has become a bit more in tune with the current investment climate after adding Apple Inc (NASDAQ:AAPL) to the other four technology components, which are Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corp. (NYSE:IBM), Cisco Systems, Inc. (NASDAQ:CSCO), and Intel Corporation (NASDAQ:INTC).

While the technology and growth spaces will generally offer you the top risk-to-reward returns, the current investment climate is cautious toward these high-beta stocks. However, I firmly believe in running a diversified portfolio that combines dividend and higher-beta stocks. This strategy offers a more balanced approach to investing for the majority of investors who what to sleep at night.

Now, not all Dow stocks are solid. Some stocks may be undergoing some bumps in their businesses, but generally, they will deliver consistent results.

Dow Laggards Worth a Look

A theory of investing that I like is the buying of the “Dogs of the Dow” that was first used by Michael B. O’Higgins in 1991.

The theory is to look at and buy the top dividend-yielding stocks each year. This method has produced some good returns over the past 20 years and more.

Look at the chart below of the Dogs of the Dow strategy over time. Since the financial crisis, the results have been spectacular.

dod elements dogs of the dow dow jones yield select 10 chartChart courtesy of www.StockCharts.com

As of June 9, the top nine Dogs of the Dow were as follows:

Company Yield
Verizon 4.39%
Chevron 4.15%
Caterpillar 3.94%
International Business Machines 3.65%
Cisco Systems 3.57%
Pfizer (NYSE:PFE) 3.40%
Exxon Mobil 3.31%
Merck 3.22%
Procter & Gamble 3.22%

You will immediately notice that the majority of companies on the list are multinationals with a global market. With the current global stalling and strong dollar, these companies may be facing some hurdles; however, over time, they will rise to the top.