The Top 40 Dividend Stocks For 2009

Dave Van Knapp of has just published a new e-book called The Top 40 Dividend Stocks For 2009: Dividend Investing for the Long Haul.

From Section 2:

In the last quarter of 2008, the Standard & Poor’s (S&P;) 500 stock index registered more dividend cuts and omissions than increases and initiations. That made it the first quarter in which unfavorable actions outnumbered favorable ones since S&P; began keeping dividend records fifty years ago. At the end of the year, about 370 of the S&P; 500?s stocks were dividend payers, down 20 from the end of 2007.

Nevertheless, total dividends paid out in 2008 by the S&P; 500?s stocks increased about 1 percent, to about $244.7 Billion. That was the lowest dividend growth rate since 2001.

The total performance of any stock consists of its dividends plus price changes. On a total-returns basis, dividend-paying stocks outperformed nonpayers by about 6 percent in 2008. Part of this was due to the dividends, which are always positive. The rest was due to comparatively better price performance.

Last year’s edition, The Top 40 Dividend Stocks for 2008, recommended 40 dividend stocks as best-of-breed at the time of publication. Let’s see how they did.

Remembering that the principal goal in dividend investing is to create a reliable, ever-increasing income stream, the Top 40 did very well. Investments in all 40 stocks over the entire year would have produced the following results:

  • 3.7 percent yield, calculated as the total dividends paid in 2008 divided by the sum of all stocks’ prices at the beginning of the year

  • 34 stocks increased their dividends over 2007, and 6 cut or froze them

Of course, in addition to receiving dividends, investors are interested in preserving or increasing their principal. Stocks across the board got hammered in 2008. The S&P; 500 lost 38 percent. Our Top 40 Dividend Stocks did better, losing 31 per cent in price averaged across all 40 stocks. When gains from dividends are factored in (dividends are always positive), the Top 40’s total return was -27 percent.

That is a severe loss. However, as a Sensible Dividend Investor, I don’t get too worried about declines in principal nor too excited about increases. The goal in dividend investing is to generate ever-increasing dividend streams. That money can then be used for re-investment or for current income. If you focus on that goal of ever-increasing dividends, then fluctuations in the prices of the individual stocks take on less importance. Your attention is on the dividend streams, not on the stocks’ prices.

Judging from reader email I received during this bear market, a focus on dividend streams would be a nice break from price volatility.

Dave presents this year’s Top 40 in separate tables ranked by name in alphabetical order, by his proprietary company quality score, by his proprietary total score, and by current dividend yield. Those yields range from a high of 9.7 percent to a low of 3.0 percent.

The company with the highest quality score and highest total score sports a yield of 4.3 percent.

Some fun facts about the Top 40:

  • The average current yield is 5.1 percent.

  • All companies on the list have increased their dividend in each of the past five years. Twenty of the companies have raised their dividend for 20 or more years consecutively.

  • The three-year average dividend growth of the Top 40 is 16 percent.

  • Every company except three has raised its dividend at least 5 percent on average over the past three years. Three companies that have raised their dividends for at least 20 years in a row were allowed onto the list with 3-year average dividend growth rates of 4 percent.

Not a bad group! Read more about it at Dave’s site.

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