Wal-Mart Stores, Inc. (WMT), Yum! Brands, Inc. (YUM), Deere & Company (DE): Three Dividend-Growers for Your List

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The stock market is on fire. Stocks have risen more than two times in price since the bull market started, in 2009. Still, now is not the time to cash out. Rather, it’s time to get defensive.

Income investments, like dividend paying stocks, give investors much needed safety right now. That’s because income payers typically don’t fall as far in down markets. So, in addition to income, there is downside protection should the market slump from here.

These income investments should be on your short list now.

Making a great dividend stock

Not all dividend stocks are winners. A great dividend stock should have a rising dividend, a low pay-out ratio, and a high yield. That’s a tough feat to accomplish for any company, and it’s exactly what makes Wal-Mart Stores, Inc. (NYSE:WMT) so special.

Wal-Mart Stores, Inc. (NYSE:WMT)

Wal-Mart Stores, Inc. (NYSE:WMT) is probably not the first name that comes to mind when you think of “dividend monsters,” which is exactly why it should be on your short list. The company is typically thought of as a rock solid, steady, grower, but that doesn’t mean it’s not a dividend dynamo. Rather, that growth is precisely why Wal-Mart Stores, Inc. (NYSE:WMT) has been able to pay a dividend for thirty nine straight years.

One change that I’ve tried to make as an investor, is that I’ve tried to stop judging dividends on an “island.” I’d recommend you do this as well. A lot of bad companies will try to lure us in by paying a ridiculously high yield. What we need is a healthy yield. Dividends come from earnings, and earnings are something that Wal-Mart Stores, Inc. (NYSE:WMT) increases regularly.

The company has increased its dividend ten times in ten years, yet it still has a scant pay-out ratio (below 40%) to go with its 2.5% yield. So consider Wal-Mart Stores, Inc. (NYSE:WMT) for your short list and keep an eye on same store sales. If the company can keep its U.S. same store numbers afloat, the dividend increases should continue.

Delicious dividends

Another fast grower with dividend fortitude is Yum! Brands, Inc. (NYSE:YUM). Yum! has doubled its dividend over the past five years and today the yield sits just under 2%. That may not sound like a huge pay-out but, with this business is increasing its earnings rapidly, your dividend will be much higher in the future.

Yum! Brands, Inc. (NYSE:YUM) is a classic example of why we shouldn’t forget the important link between earnings growth and dividends; the latter cannot exist without the former.

I like Yum! Brands, Inc. (NYSE:YUM)’s chances of increasing its dividend because its current pay-out is so low, just 40%. Further, this company is coming off of a series of blows in its fast growing Chinese business due to bad public relations, and that is starting to turn-around. Even better, Yum! Brands, Inc. (NYSE:YUM)’s Taco Bell brand has seen a “re-birth” thanks to the ingenious marketing campaign of its new “Doritos” taco line.

Yum! Brands, Inc. (NYSE:YUM) owns and operates KFC, Taco Bell, and Pizza Hut, three truly unique brands. What makes these brands so unique is that they offer something in the fast food space that other large competitors do not. Just think about that for a second; Burger King Worldwide Inc (NYSE:BKW) can’t say that, neither can McDonald’s Corporation (NYSE:MCD)‘s. I’m a big fan of Yum! as a growth and safety play. If the Chinese PR mess cleans up, then Yum!’s recent upgrade by UBS (price target of $80) will prove to be too conservative.

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