3 Red-Hot Dividend Stocks

The Federal Reserve's technical move of the discount rate will not help income investors, but these dividend stocks might.

By Jamie Dlugosch Feb 19, 2010 6:19PM

After the market closed on Thursday, the Federal Reserve increased the discount rate by 25 basis points. The nominal move may be the beginning of the end of the easy money policy that has been used to lift the U.S. economy out of recession.


Let’s not get too excited about what the central bank is now saying is merely a technical move. While all expect rates to rise eventually the timing of real increases in rates is still far down the road.


Interest rates even with Thursday’s move are still essentially zero and the yield curve remains quite steep. (10 stocks benefiting from a steep yield curve)


Such an environment has been quite the challenge for those investors needing income from investments for retirement living expenses. Bank CD’s and Treasuries simply won’t cut it.


What does cut it in this environment? Dividend stocks are clearly the big winners. With dividend stocks investors can generate a solid, stable return that is much more than short term Treasuries or CD’s.


In addition some dividend stocks appreciate in value increasing the total return.


While there is a wide degree of possibilities in the dividend market, I’m interested in companies that are raising dividends. A company that increases its dividend does so with confidence in its operating cash flow.


That cash flow strength provides comfort that investors will indeed be paid and paid for quite some time. Here are 3 companies that recently increased their dividends.


3M (MMM)


3M Co. (MMM) will be there through thick and thin. They always have been as evidenced by dividend increases on a consistent basis for many years. With a current dividend yield of 2.6% investors are getting paid to own one of the most solid companies on the New York Stock Exchange. If you are a believer of the falling dollar, this multinational company could see nice appreciation given its sales overseas. One thing you don’t have to worry about with 3M Co. (MMM) is getting paid.


United Technologies (UTX)


United Technologies (UTX) is an industrial conglomerate with tentacles touching many industries including defense. Government spending may be at risk given rising deficits, but defense spending cuts rarely happen. As a result UTX is able to generate stable and growing profits irrespective of economic conditions. At the moment UTX pays an annual dividend of 2.5%. Trading at reasonable valuation suggests that investors will be rewarded with a dividend and appreciation given the improvement in the global economy.


Wyndham Worldwide (WYN)


Wyndham Worldwide (WYN) is a global hotel, resort and time share operator emerging from a challenging operating period. Last week the company announced that it was increasing its quarterly dividend from $.04 to $.12. That is a huge increase and clearly demonstrates confidence in the future by management. The increase pushes the annual yield on the stock above 2%. In addition the company is buying back stock, a move that will further enhance returns to dividend investors. The combination of future earnings growth and a strong dividend make this stock attractive for income investors.


If you like dividend stocks check out two more selections here.


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