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 (T) – dividend yield of 5.7%
• Philip Morris (PM) – dividend yield of 5.1%
• Chevron (CVX) – dividend yield of 5.7%
• BHP Billiton (BHP) – dividend yield of 7.3%
• ConocoPhillips (COP) – dividend yield of 6.2%
• Southern Company (SO) – dividend yield of 5.1%
• Vodafone (VOD) – dividend yield of 6.8%
• National Retail Properties (NNN) – dividend yield of 5.1%
• Realty Income (O) – dividend yield of 5.2%
• Helmerich & Payne (HP) – dividend yield of 5.4%
• Universal Health Trust (UHT) – dividend yield of 5.9%
• HCP, Inc. (HCP) – dividend yield of 6.3%

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:

1. Raising prices
2. Repurchasing shares
3. Focusing on efficient operations
4. Gaining market share from competitors

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.

Despite drastically lower oil prices, Chevron is still generating large cash flows from operations. In the first 6 months of this year, the company generated $9.5 billion in operating cash flows.

Chevron stock is currently trading for a price-to-earnings ratio of just 11.6. Over the last 12 months, the company is down over 35%. Chevron is an extremely high quality business as evidenced by its long history of continuously rising dividends. You can own it now at a 35% discount to prices seen last year.

Perhaps the biggest worry about Chevron today is… “is the dividend safe?”

Simply put, yes. It’s no secret that low oil prices have hurt Chevron’s profitability. Despite low oil prices, Chevron’s management is still committed to paying dividends.

Chevron currently has $12.5 billion in cash and liquid investments on its balance sheet. The company is accelerating its divestment plan and reducing capital expenditures to conserve cash. Chevron currently pays out around $8 billion a year in dividends.

Chevron can fully fund its dividend payments with just cash on hand for about 1.5 years. This is a ‘worst case scenario’. Chevron is still generating large operating profits to supplement its cash on hand – further insulating the dividend from cuts while oil prices remain low.

BHP Billiton – High Dividend Mining Stock

In 1851 BHP Billiton was started as a tin mining operation on Billiton Island in Indonesia. Since that time, the company has grown to reach a market cap of $90 billion. The company is headquartered in Australia and is a member of the exclusive Australian ASX 20 Index.

BHP Billiton is a diversified mining corporation. The company produces a variety of natural resources including:

• Oil & gas
• Silver & Gold
• Iron
• Nickel
• Copper
• Diamond

The company operates around the world. BHP Billiton’s diversified operations help to insulate it from downturns in any one commodity. The company operates at a truly massive scale. Over the last 12 months, BHP Billiton has generated $44.6 billion in sales and $3.4 billion in profits.

BHP Billiton has paid steady or rising dividends since 1988. The company’s dividend payments have increased every year since 2001. BHP Billiton currently has a payout ratio of 42.0%. It is very likely the company will continue to increase its dividends

Despite its stable dividend payments and long history of success, BHP Billiton is unloved by the market. The company’s stock is currently trading for a dividend yield of 7.3%. It is very rare to find a high quality business that offers investors such a high yield.

The company’s stock price has declined 45% over the last year – making BHP Billiton a value play. BHP Billiton’s stock price has fallen so precipitously due to low oil, gas, and metal prices coupled with a strong United States dollar. Simply put, now is one of the best opportunities you will have to buy into this high yielding miner.

ConocoPhillips – High Dividend Upstream Oil Stock

ConocoPhillips is one of the largest non-integrated publicly traded oil corporations. The company currently has a market cap of nearly $60 billion and was founded in 1917.

ConocoPhillips’ revenue and earnings come primarily from the exploration and production of oil and gas. Over the last 12 months, the company has generated just under $40 billion in sales – and has earnings of $1.7 billion.

The last year has not been kind to ConocoPhillips. The company’s stock price has declined over 35% due to falling oil prices. This has pushed the stock’s yield to 6.2%.

ConocoPhillips has plans in place to grow production 3% to 5% per year to 2017. The company plans to grow North American Unconventional production and Oil Sands production at 20%+ per year through 2017.

Oil prices fluctuate. In the short-run, this distorts ConocoPhillips growth picture. In the long-run, the company will likely continue to increase production as technological advances continue to make new oil plays possible. With its current 6%+ dividend yield and production gains of 3% to 5% a year, investors will likely see double-digit total returns before accounting for valuation multiple changes over a full economic cycle.

The best time to buy oil companies is when oil prices fall. ConocoPhillips is on sale for 35% off prices of just 1 year ago. The company appears undervalued at current prices. When oil prices rise – and the will; oil prices have always risen and fallen and will continue to do so – ConocoPhillips shareholders will benefit. The company will see its earnings increase substantially. In addition, its valuation multiples may rise as investors get excited about the prospects of higher oil prices. This will likely result in solid gains for ConocoPhillips shareholders who bought in when oil prices were low.

Southern Company – High Dividend Southern U.S. Utility

Southern Company is a large-cap electricity utility provider. The company currently has a market cap of $38 billion.

Southern Company provides electricity utility services 4.5 million customers in Georgia, Alabama, Mississippi, and Florida.

Utility businesses are known for their stability – and Southern Company is one of the most stable. The company’s business lends itself to geographic monopolies. Customers absolutely want to keep the lights on – this results in stable cash flows. Southern Company has one of the lowest stock price standard deviations of any stock.

In addition, the company has paid regular dividends for 271 consecutive quarters. Southern Company is safe and stable, but it is not fast growing. Over the last decade, the company has compounded earnings-per-share at just 3.0% a year. Dividends have grown slightly faster, at 3.9% a year.

Investors in Southern Company should expect total returns of 8% and 9% a year. Returns will come from dividends (5%) and growth (3% to 4%). Southern Company will likely provide total returns at around the same rate as the overall stock market – with significantly less risk and volatility.

You may have noticed the steep declines in many of the stocks mentioned in this article over the last year. Southern Company is not one of those stocks. The company’s stock has actually gained 1.3% over the last year.

Southern Company is currently trading for a price-to-earnings multiple of 15.1x expected 2015 earnings. The company is likely trading around fair value at this time. Southern Company’s combination of a high dividend, safety and stability, and fair price give it a high ranking using The 8 Rules of Dividend Investing. Click here to see The 8 Rules of Dividend Investing.

Vodafone – High Dividend Global Telecommunications Stock

Vodafone is one of the largest telecommunications businesses in the world. The company currently has a market cap of nearly $94 billion.

AT&T operates primarily in the United States (and increasingly, in Mexico). Vodafone casts a much wider net.

The company has mobile networks in 26 countries and partners with mobile networks in more than 50 additional countries. The company currently generates about 80% of its revenue from mobile users.

Vodafone’s largest markets by percentage of revenue generated for the company are shown below:

• Germany: 22% of revenue
• United Kingdom: 16% of revenue
• India: 10% of revenue
• Spain: 9% of revenue

Vodafone’s growth strategy is focused on emerging markets. Emerging markets simply have larger untapped markets. They will be the drivers of telecommunications growth over the next several years. Vodafone knows this. The company recently won a large spectrum auction in India, which should allow it to gain more market share in the country.

Vodafone is sitting on $16 billion in cash on its balance sheet. This gives the company ample room to expand its business. I would not be surprised in the slightest to see Vodafone make several small acquisitions in emerging markets to continue to expand its mobile business.

Vodafone is currently trading for just 6.5x expected 2015 cash flows. The company appears undervalued at current prices given its utility-like business model.

The company’s massive 6.8% dividend yield should appeal to investors looking for current income. Vodafone’s large amount of cash on hand gives it ample opportunities for expansion. The company’s stock offers investors high dividends, growth potential, and safety.

National Retail Properties – High Dividend Retail REIT

National Retail Properties is much smaller than most of the other ‘super giant’ corporations on this list. The company currently has a market cap of ‘just’ $4.6 billion.

Long time investors in National Retail Properties have been very happy. The company has generated compound total returns of 15.9% a year over the last 25 years – versus 9.6% a year for the S&P 500 over the same time period.

In addition, the company has paid increasing dividends over the last 25 years. If National Retail Properties were larger, it would be a Dividend Aristocrat based on its dividend history.

National Retail Properties has something all businesses pretend to have, but very few actually have: an excellent CEO.

CEO Craig Macnab’s latest annual report is full of excellent quotes that show he understands capital allocation and is shareholder friendly. One of his better quotes is below:

“Our management team is convinced that we will continue to build value over the medium to long-term for our shareholders by:

– Carefully allocating capital into well-underwritten retail properties;
– Focusing our energy on increasing per share value as opposed to simply growing our asset base;
– Evaluating all corporate or large portfolio acquisition opportunities, but only pursuing those which are consistent with our goal of building long-term shareholder value;
– Maintaining a conservative and flexible balance sheet which allows for future growth.”

Notice how he says management is “focusing our energy on increasing per share value as opposed to simply growth our asset base”. That is exactlywhat every publicly traded company should be doing – but very few actually do it.

Based on National Retail Properties’ excellent 25 year track record, management not only talks-the-talk, they also walk-the-walk.

National Retail Properties will likely generate total returns less than its historical average of 15.9% a year over the next several years. With that said, the company does offer investors a current dividend yield of 5.1% – and will very likely continue to pay higher dividend.

Realty Income – High Dividend Monthly Paying REIT

Reatly Income has a 5.2% dividend yield, but it is how it pays its dividend that is interesting. Unlike most business that pay quarterly dividends, Realty Income pays dividends monthly. This gives the company’s stock a special appeal for investors looking for stable monthly dividends.

Realty Income has paid uninterrupted dividends since 1970. The company’s long dividend streak, monthly payouts, and high yield make it an intriguing choice for income oriented investors.

The company has over 4,200 commercial properties that generate rental revenue from long-term lease agreements with its 231 different customers. Realty Income has properties in 49 states and Puerto Rico.

Over the last decade, Realty Income has grown its dividend payments at 5.5% a year. The company’s growth will likely continue at around 5% a year. Management expects adjusted funds from operations growth of between 4% and 6% in 2015, in line with historical numbers. Shareholders should expect total returns of around 10% a year from Realty Income from dividends (5%) and growth (5%).

Realty Income stock’s normal dividend yield range has been between 5% and 6% over the last decade. At current prices, Realty Income appears to be trading around the higher side of its historical fair value.

In conclusion, Realty Income is a high quality REIT with a long history of growth. The company has a generous dividend policy and a shareholder friendly management. The company appears to be trading around the high side of fair value at current prices. As a result, current investors should continue to hold the stock for the long run, while potential future investors should probably wait for a better entry point into the company.

Helmerich & Payne – High Dividend Drilling Services Stock

Helmerich & Payne is the industry leader in the North American rig leasing market. The company currently has a market cap of $5.5 billion, making it smaller than most of the other high dividend stocks on this list. The image below shows Helmerich & Payne’s market share lead:

 

The company has benefited tremendously from the North American oil renaissance. Over the last decade, Helmerich & Payne has compounded its earnings-per-share at 22% a year.

Helmerich & Payne is a fantastic business that realizes rapid growth when oil prices rise… Unfortunately, it also contracts when oil prices fall. The company’s share price has declined 47% this year alone.

Deep price declines due to falling oil prices have made Helmerich & Payne an absolute bargain.

“The best thing that happens to us is when a great company gets into temporary trouble… We want to buy them when they’re on the operating table.”

– Warren Buffett

Helmerich & Payne is priced at ‘operating table’ levels right now. The company currently has a 5.4% dividend yield and is trading for a price-to-earnings ratio of just 9.2. When was the last time you saw a company with 20%+ earnings-per-share growth trading for a price-to-earnings ratio under 10? It doesn’t happen often.

When oil prices rise, investors in Helmerich & Payne will very likely see both rapid earnings growth and an upward revision in the company’s price-to-earnings multiple.

This is not the first time Helmerich & Payne has survived through low oil prices. The company has paid steady or increasing dividends every year since 1987. The company still has around $700 million in cash sitting on its balance sheet – and pays dividends of around $300 million a year. Helmerich & Payne has plenty of reserves to outlast the current bout of low oil prices and still reward shareholders with large dividend payments.

Universal Health Realty Trust – High Dividend Health Care REIT (1 of 2)

Universal Health Realty Trust is a publicly traded REIT with a market cap of just $580 million – making it by far the smallest stock on this list.

The company was founded in 1986 and has paid steady or increasing dividends every year since that time. Universal Health Realty Trust focuses on real estate investments specifically for the health care industry.

The company’s investments include: hospitals, medical office buildings, behavioral healthcare facilities, and childcare centers. The majority of the company’s properties are medical offices and clinics.

Universal Health Realty Trust currently offers investors a very nice 5.9% dividend yield. As a REIT, the company is obligated to pay out the majority of its earnings as dividends.

By focusing on health care companies, Universal Health Realty Trust insulates itself from the worst effects of recessions. The health care industry is only minimally effected by recessions – people need health care regardless of the overall economy. This means that Universal Health Realty Trust’s tenants have the necessary cash flows to continue paying the company’s leases – regardless of the overall economy.

Despite its high quality tenants, Universal Health Realty Trust has not generated rapid growth. Over the last decade, the company has realized earnings-per-share growth of just 2.6% a year – just above inflation.

As a result, investors should not exceptionally high total returns from Universal Health Realty Trust. The company will likely continue growing at between 2% and 4% a year. This growth combined with the company’s dividend yield of nearly 6% gives investors expected total returns of 8% to 10% a year – not bad, but not amazing, either.

HCP – High Dividend Health Care REIT (2 of 2)

HCP is one of the 3 largest publicly traded Health Care REITs in North America based on its market cap of $16.6 billion. The company is much larger than Universal Health Realty Trust, which was analyzed above.

HCP operates a portfolio of around 1,200 properties in the US and British Isles. The company operates in 5 segments within the health care industry:

• Senior Housing
• Post Acute/Skilled
• Life Science
• Medical Office
• Hospitals

The Senior Housing and Post Acute/Skilled segments are the most important to HCP. These two segments generate about two-thirds of the company’s income.

Over the last decade, HCP has seen dividend-per-share growth of around just 3% a year. Funds-from-operations-per-share grew at 5.8% a year. Over the last decade, HCP has slowly reduced its payout ratio.

This gives the company ‘wiggle room’ to continue raising dividend payments if earnings fall somewhat. Going forward, investors should expect continued rising dividends from HCP. Expected total returns are between 9% and 12% a year from dividends (~6%) and growth (3% to 6%). An aging population in both the United Kingdom and the United States is the long-term macroeconomic growth driver for HCP.

HCP performed well through the Great Recession of 2007 to 2009. As mentioned earlier in this article, the health care industry is relatively resistant to the effects of recessions. HCP’s funds-from-operations per share are shown below through the Great Recession and subsequent recovery are shown below to illustrate this point:

• 2007 FFO/S of $2.14 (high at the time)
• 2008 FFO/S of $2.25 (new high)
• 2009 FFO/S of $2.14 (recession low)
• 2010 FFO/S of $2.18 (beginning of recovery)
• 2011 FFO/S of $2.37 (new high)

HCP is a high quality business with above average expected total returns. The company appears to be fairly valued or slightly undervalued given its current dividend yield of 6.3%. The company’s dividend yield has fluctuated between 4.5% and 7.5% over the last decade.