5 top dividend stocks for the long term

To achieve outstanding total returns, investors should look for growing payouts.

By Motley Fool Apr 16, 2013 3:47PM

100 bills growing in grass REB Images Blend Images Getty ImagesBy John Reeves and David Meier

Equity investors who are looking for income are often tempted by a particular stock's dividend yield (see Fool wiki). We believe they'd be wiser to focus on a company's expected dividend growth. That's the best way to earn outstanding long-term total returns.

Look at the amazing results of McDonald's (MCD) over the past several decades, for example. The company has been able to deliver outstanding total returns by paying out higher and higher dividends each year over an extremely long time horizon. Ultimately, investors are willing to pay higher and higher prices for shares that offer a growing stream of dividends.

Given the importance of dividend growth for driving long-term, total returns, we've identified five remarkable companies that are projected to grow their dividends significantly over the next five years.

1. Coach (COH)
Coach designs, markets and sells fashion handbags, apparel and accessories.

Investing thesis: Coach will likely deliver increases in both its share price and its dividend payout over the next five years. That attractive combination could result in multibagger total returns for investors over the long term.

2. McDonald's (MCD)
McDonald's is a global fast-food restaurant powerhouse.

Investing thesis: McDonald's has increased its dividend each and every year since it first started paying one in 1976. And the iconic fast-food franchise shows no signs of slowing down its ever-growing dividend payouts. The end result for investors will be market-beating total returns in the future.

3. Western Union (WU)
Western Union is the global leader of money transfers and payment services.

Investing thesis: Western Union's dividend will grow as the company's earnings steadily rise, and the company increases the payout ratio over time.

4. Intel (INTC)
Intel is the leading manufacturer of microprocessors.

Investing thesis: With a 4% dividend yield and the potential to increase its dividend 8%-12% per year, Intel's total return should outperform the market, even during tough industry conditions.

5. Apple (AAPL)
Apple creates mobile communication and media devices, personal computers, and portable digital music players. It also sells software, services, peripherals, networking solutions, and third-party digital content and applications that support its devices.

Investing thesis: Apple began paying a dividend again in 2012 -- the first in 17 years! With an incredible lineup of existing products, a rock-solid balance sheet and tremendous growth possibilities, Apple offers one of the best risk-adjusted total return opportunities in the market over the next five years.

Improving the odds of beating the market
We feel confident that all five of the companies mentioned above will outperform the broader market over the long term.

If you're looking for some more long-term investing ideas with great dividends, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Apr 16, 2013 10:55PM
some good , some ok, I would hardly rate these as "top of the class"
Apr 17, 2013 8:51AM

I'll keep my 5 picks for the Long Term:


1. KO

2. XOM

3. PG

4. JNJ

5. MMM

Apr 17, 2013 9:22AM
However one wishes to diversify within the group, the thesis is more likely to be reliably profitable long term than any other of which I know: The compounding reinvestment of regularly-paid dividends can lead to very large financial gains.
Apr 17, 2013 12:34PM
This is a pretty good list of companies with long records of success. I don't trust "projected" earnings for companies that don't have a decade or more of consistent growth in earnings and revenues with manageable debt and with successful abilities to put new earnings to work - which generally shows up as consistent of improved Return On Equity.

Companies like that are predictable.  Projections on other companies are usually WAY off.  This is the starting point when screening for investments in Mary Buffett's excellent book, "Buffettology."

Coach, McDonald's, and Western Union pass those long term tests.

For Intel, microprocessors are, more and more becoming lower-priced commodities.  There's less of  a premium for faster processors since computers don't become obsolete as fast.  I find it unrealistic to see 0% projected EPS growth, a 39% payout ratio, and 8-12% projected dividend growth.  If they begin raising the dividend to try to keep the stock price up while earnings falter, that's only going to last so long.

Apple has a very attractive P/E and corporate history.  But I see it as extremely risky.  The problem is that once you grow so large, you need ever more stupendous new products to keep the percentage growth going, and in the past that's always come to an end: Microsoft, GE, Intel, IBM, Motorola, RCA, Underwood (Typewriter), Dupont, etc. were hailed as "sky-is-the-limit" companies in the past.

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