High Dividend Stocks: 12 Quality Businesses With 5%+ Yields

The advantage of high dividend stocks could not be more obvious…

They pay you more money for every dollar invested than lower yielding (or no dividend at all) stocks.

Just how high, exactly, of a dividend does it take to qualify as a ‘high dividend stock’? There’s no magic number, but I used a cut-off of 5%.

Stocks with dividend yields of 5% are far from common. The S&P 500 has 502 stocks in it (it would be much cleaner to just have 500). Of these 502, 425 (85%) pay a dividend. Only 123 (25%) have a dividend yield of 3% or higher… Just 24 (5%) have a dividend yield of 5% or higher.

Now, not all of the 12 high quality dividend stocks examined in this article are in the S&P 500, but, all 12 have paid steady or increasing dividends for 25 or more years in a row.

After all, what good is a high dividend yield if you can’t count on the dividends actually coming in.

That’s what has historically been the problem with high yielding dividend stocks – they have high yields because they are riskier (on average) than lower yielding businesses. The 12 stocks in this article have proven they reliably and consistently reward shareholders with steady or rising (and very big) dividend payments.

A quick list of 12 high dividend stocks with long dividend histories is below. Each of these 12 stocks is analyzed in detail in this article as well.

AT&T – High Dividend Telecommunications Stock

AT&T has a 5.7% dividend yield and has paid increasing dividends for 31 consecutive years. The company is a Dividend Aristocrat thanks to its 3+ decades of steadily rising dividend payments.

AT&T has managed to grow its dividend payments for such a long period of time because it possesses a strong competitive advantage. The company’s advantage comes from the enormous up-front costs it takes to compete in the wireless telecommunications industry in the United States.

Large businesses with strong competitive advantages and long dividend histories are often called ‘blue chips’. Click here to see 11 undervalued blue chips (AT&T is one of them).

Verizon (VZ) and AT&T are the 2 ‘900 pound gorillas’ in the United States telecommunications industry. Verizon has a market cap of over $180 billion… AT&T is even bigger. The company currently sports a market cap of over $200 billion. Together, these two companies control about 70% of the United States wireless telecommunications market.

In addition to high infrastructure costs, wireless spectrum usage is controlled and auctioned by the United States government. AT&T spent $18.2 billion in the last spectrum auction alone. Very few businesses have access to this type of capital – reducing competition and allowing the biggest players to control the market.

Fortunately for AT&T shareholders, the company returns these outsized profits to them in the form of dividend payments. The company currently has a payout ratio of 72% of expected 2015 earnings.

AT&T is currently trading for a forward price-to-earnings ratio of just 11.8. AT&T’s combination of stability, long dividend history, high yield, and low price-to-earnings ratio creates a very low risk investment option for investors.

Don’t look for rapid growth from AT&T – the company has compounded earnings-per-share at just 4.2% a year over the last decade. Instead, look to AT&T if you are looking for current income and inflation beating growth.

Philip Morris – High Dividend International Cigarette Stock

Philip Morris International is the largest cigarette corporation in the world. The company currently has a market cap of over $120 billion.

Philip Morris sells the Marlboro cigarette brand (and other brands) internationally. The company was created when it split from Altria (MO) in 2008. Altria sells Marlboro cigarettes (among other brands and products) in the United States – Philip Morris has the rest of the world (besides the United States) to sell its tobacco products.

Since 2008, Philip Morris has compounded its earnings-per-share at 6.2% a year over the last decade. The company has realized this growth in spite of global cigarette volume declines. Philip Morris has been able to succeed in a difficult environment by:

Some analysts are predicting that Philip Morris’ growth will actually increaseover the next few years as the company continues to roll out new innovations like the iQOS cigarette system. The image below shows the iQOS system.

With expected earnings-per-share growth of between 6% and 8% a year going forward and a 5%+ dividend yield, investors in Philip Morris can expect total returns of between 11% and 13% a year. Not bad for a business in a declining industry.

Philip Morris stock currently trades for a price-to-earnings ratio of just 16.5. The company is trading below the S&P 500’s price-to-earnings ratio despite having higher expected total returns and selling a product that does well regardless of the overall economic environment.

Chevron – High Dividend Integrated Oil Stock

Chevron is one of the largest integrated oil and gas corporations in the world. The company has paid increasing dividends for 27 consecutive years.  Chevron is one of only 2 oil corporations in the Dividend Aristocrats Index. ExxonMobil (XOM) is the other. Click here to see a list of all 52 Dividend Aristocrats.

Chevron has both upstream and downstream operations. When oil prices fall, the downstream operations become more profitable, while the upstream operations suffer. The upstream segment is more profitable and a much larger part of Chevron’s business, but it is important to note that the company is at least partially diversified against low oil prices.