This market presents a ripe environment for dividend paying stocks. With rising interest rates hurting bond valuations, dividends provide income that makes more sense than ever. If you feel the market is due for a correction, from its current record levels, dividend payers may also provide some of the safety you seek.
But not all dividend payers are created equal. We want dividend stocks that can increase their payment, so that they can compete with rising interest rates. The best dividend stocks offer a combination of a high dividend yield, a low pay-out ratio, and growth prospects as well.
I’ve compiled a short list of stocks with dividend yields over 2%, pay-out ratio’s under 60%, and growth prospects to boot. Consider these dividend stocks today.
Dividends in the cupboard
Few things in life are as constant as General Mills, Inc.
(NYSE:GIS). With its stable of household brand foods like Cheerios, Betty Crocker, and Pillsbury, General Mills, Inc. (NYSE:GIS) is a part of nearly every American life. The only thing, it seems, that is quite as steady as General Mills, Inc. (NYSE:GIS), is the company’s awesome dividend.
General Mills, Inc. (NYSE:GIS)could be a case study, showing how dividends are not created equal. When I say they have an awesome dividend, it’s not just because of the 2.95% dividend yield. For starters the company has a very low, 54%, pay-out ratio. Low pay-out ratios typically are a sign of dividend increases to come, and General Mills, Inc. (NYSE:GIS) is a perfect example of that. This business has had a whopping twenty three dividend increases since1983 without a single dividend cut! To boot, this Lucky Charms purveyor, has already increased its dividend twice since last year.
Separately, there’s real growth at General Mills, Inc. (NYSE:GIS) to fuel dividend increases going forward. Earnings and dividends have both increased around 10% annually over the past five years. And while most recent quarter showed a slight year over year drop, earnings are still expected to grow at about the same rate for General Mills year over year.
Dividends on tap
If there is a such thing as an “adult version” of General Mills, it has to be Diageo plc (ADR) (NYSE:DEO). With household name brands like Guinness, Baileys, and Smirnoff on tap, this business is also a part of every American life–the fun part!
Diageo plc (ADR) (NYSE:DEO) meets our criteria by paying a dividend yield of 2.31% with a sub-50% pay-out ratio, but its growth potential should lead to a higher dividend going forward.