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10 Dividend Stocks You Can't Ignore


Solid gains and high yields can still be found in the dividend equity pool, unlike almost every other corner of the market these days.

Everybody is on the hunt for higher yields. With a three-month Treasury bill yielding 0.03%, way less than the rate of inflation, and a ten-year Treasury yielding just 2.04%, barely more than inflation, who can blame them?

And too many investors seem willing to add lots of risk in their hunt for yield. Ten years is a long time to lock up your money in even something as safe as a Treasury note if interest rates or inflation go up. Buying a corporate junk bond might get you 5% or 6%, but these are the riskiest corporate debt out there. If the economy stumbles, junk bonds will tumble.

If you're looking for higher yield and you don't want to sacrifice safety, I think you're best bet is to look for dividend stocks from solid companies. The payouts from a dividend stock go up over time - unlike the fixed payouts from a bond - giving you protection if interest rates rise.

And if you pick a company with a solid and growing cash flow from its business, you're taking on much less risk than you would with a junk bond. Best of all, if you dig real hard, you can find stocks paying dividends of 3%, 4%, 5%, and even occasionally 6%.

Here are my ten favorite low-risk, high-dividend stocks.

Bank of Nova Scotia (TSE:BNS)
Yield 4.06%

This is the third largest of Canada's six major banks. (Together, the six hold 90% of Canada's bank assets.) And it is by far the one with the most exposure to emerging markets in Latin America and Asia, although the bank by has by no means neglected its Canadian market in recent years. In the last year, Bank of Nova Scotia, better known as Scotiabank, bought ING DIRECT Canada to add 2 million Canadian accounts, and acquired a 51% stake in Banco Colpatria in Colombia.

Customer headcount comes to 8 million in Canada and 11.5 million internationally. The mix gives Bank of Nova Scotia exposure to faster growth in emerging markets, as well as the stability of a big deposit base in the highly regulated Canadian market.

The bank has grown dividends by 4.6% per year over the last five years. Standard & Poor's gives Bank of Nova Scotia an A+ credit rating.

General Electric (NYSE:GE)
Yield 3.2%

With General Electric, you're sacrificing some yield today for the promise of more yield tomorrow.

After cutting its dividend during the financial crisis, thanks to GE Capital's neck-deep exposure to the mortgage crisis, the company has gradually rebuilt its dividend from a quarterly $.10 per share in 2009 to $.19 per share in 2013 -- and there's more on the way. The company has said it will spend $18 billion in cash on shareholders in 2013, with most of that ($10 billion) going to share buybacks.

Revenue from the company's industrial segment is projected to climb by 5% to 10% this year, with margins climbing an estimated 0.7 percentage points. General Electric plans to gradually shrink GE Capital until it represents about 30% of company earnings.

Standard & Poor's gives General Electric an AA+ rating. General Electric is a member of my Dividend Income portfolio.

Holly Energy Partners (NYSE:HEP)
Yield 5.11%

Holly Energy Partners is a master limited partnership spun off by refiner HollyFrontier (NYSE:HFC) in 2004. Assets include 2,600 miles of pipelines, 12 million barrels of storage, and oil terminals in the West and Southwest.

This is a very low-risk MLP, because almost 100% of its revenue comes from fees with built-in inflation matching (as opposed to contracts with prices based on commodity prices), and because Holly Energy assets are focused near such prime areas of the US midcontinent oil boom as the Permian Basin of Texas.

Distributions climbed 6.7% in the first quarter of 2013 from the first quarter of 2012. The five-year average annual increase in distributions has been 5.31%.

Master limited partnerships are tax-advantaged vehicles best owned outside a retirement account. (Part of the annual distribution is treated as a return of capital, and is not taxed until you sell the units.)

Yield 3.72%

Once upon a time, technology companies didn't pay dividends. Now Intel and others such as Microsoft (NASDAQ:MSFT) and Cisco Systems (NASDAQ:CSCO) do. (Microsoft's yield is 2.66% and Cisco pays 2.91%.) Call it a clear sign that these erstwhile tech rockets have become mature giants.

But something interesting has developed in the way that Intel plays the dividend game: The company not only pays a higher yield than other technology companies, but it has also been very aggressive in increasing its dividend during periods when the share price has climbed, so that the yield stays above 3%.

Intel's five-year annual rate of dividend growth is a huge 12.82%. That puts it ahead of consumer dividend plays such as Procter & Gamble (NYSE:PG), which shows a hefty 9.55% annual growth rate in its dividend over the last five years.

I think part of that reason is that the company sees itself going through a tough transition from the PC-centered world its chips dominate to a world dominated by smartphones and tablets. Intel has turned its powerful manufacturing engine to catching up with such new paradigm leaders as ARM Holdings (NASDAQ:ARMH) and Qualcomm (NASDAQ:QCOM).

The release of Intel's Atom chip using 22-nanometer manufacturing this year (and 14 nanometers in 2014) will help close the gap for Intel on energy efficiency. But this is a long-term battle. Fortunately, Intel is good at those.

Standard & Poor's gives Intel an A+ credit rating. Intel is a member of my Dividend Income portfolio.
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