The Real Dividend Stocks and How to Find Them

This article also appeared at The Motley Fool.

I’m always on the hunt for good dividend payers so I try and read articles and posts on good dividend paying stocks mostly to come away disappointed with stocks paying 2% – 4% dividends. That is not good. Doesn’t matter if the dividend is growing or has been growing forever, a current yield of 2% or 3% is not what I would consider a good dividend stock.

Dividend stock lists often contain stocks like McDonald’s (3.5%), Wal-Mart (2.3%) and Pepsi (3.1%). All of them pay growing dividends and have paid dividends for a long time. Good stable companies whose dividend is not likely to reduce. But in my mind these are not “dividend” stocks. That’s like savings accounts calling 0.25% high yield.

I want yields of more than 4%, preferably more than 6% and the expectations of growing dividends. And it turns out that this is not a difficult problem at all. I simply needed more research. And here it is.

Let me start with my favorite dividend stock – Kinder Morgan. You have two options investing in Kinder Morgan — KMP (NYSE: KMP) and KMR (NYSE: KMR). They pay a dividend of 6% and 6.3%, respectively. KMP pays dividends in cash and KMR pays dividends in stock. KMP is a partnership and you have to deal with K1s at tax time, while KMR is like a regular stock. Both of these dividends are tax free until you actually sell the stock. Kinder Morgan is an MLP (Master Limited Partnership — a publicly traded partnership that is generally used by oil and gas pipeline companies) and there are several other MLPs that also pay good dividends. The industry as a whole is a good place to look for dividend payers.

Another good dividend paying stock is Verizon (NYSE: VZ) (4.8% dividend). Personally I prefer Verizon over AT&T (5.3% dividend) because as of now Verizon has invested in actually having a better network with more coverage. Also the stock has been performing better.

Another industry that pays good dividends is the Shipping Container Leasing industry. The leaders Textainer Group (NYSE: TGH) and TAL (NYSE: TAL) both pay excellent dividends of 5.6% and 6.8%, respectively.

To find these stocks I went through a stock screener looking for stocks yielding more than a certain percent and then looked up each one to see if the dividends were stable and growing, if the company actually made enough money to cover the dividends, and I’ve avoided companies and funds with complex financial business models that I don’t clearly understand.

Other dividend paying stocks I recommend are:

  • Waste Management – WM (4.2%)
  • Glaxo – GSK (5.3%)
  • B&G Foods – BGS (4.1%)
  • Transmontaigne Partners – TLP (6.7%)
  • Intel – INTC (4.3%)

in addition to the ones already mentioned in the article

  • Kinder Morgan – KMP (6.3%)
  • Verizon- VZ (4.8%)
  • Textainer Group – TGH (5.6%)
  • TAL (6.8%)

That is a good list to start with and you can always find your own gems by using a screener.

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