Best Dividend Stocks for January 2017

Updated: 2017-01-10
The following list shows stocks that strike a balance between high dividends and reasonable growth potential. Some people think the best dividend stocks are those offering the highest dividends, but that's totally incorrect. In fact, some of the worst stocks to invest in are those with very high dividend yields, since often these high payments are actually compensation for investing in a high-risk company.

Although I don't focus on income investing (see here for my free stock signals), several people have asked for recommendations on good dividend stocks, so I compiled the following list. This list is mostly computer generated with many variables involved in the models; the idea was to pick stocks that offer a reasonably good dividend income, while at the same time being a relatively decent company to invest in. The models were calibrated to put positive weights on stocks with good features (such as high dividends) while at the same time penalizing stocks with red flags (falling revenues, falling EPS, etc). Note that this is by no means a diversified list of companies, as often the picks will lean towards a sector that's dividend heavy. However, for those with a diverse portfolio looking to add some dividend stocks, these picks may be useful.

Pharmaceuticals

The winners among pharmaceuticals are Johnson & Johnson (JNJ), Merck (MRK) and AbbVie (ABBV). Also worth mentioning are Amgen (AMGN) and Sanofi (SNY). Although some other pharma stocks are offering higher yields, it's questionable whether those payments can be maintained at their current levels.

Stock Symbol Yield Payout Ratio
Johnson & Johnson JNJ 2.75 56.04
Merck MRK 3.08 95.43
AbbVie Inc. ABBV 3.99 68.82
Amgen Inc. AMGN 2.9 45.95
Sanofi SA SNY 4.06 390.59

Banking

In the banking industry both JP Morgan (JPM) and Wells Fargo (WFC) made the list with reasonable yields and payout ratios. Notably excluded was HSBC. Also absent from the list was Citigroup, the main reason being the low dividend yield.

Stock Symbol Yield Payout Ratio
JPMorgan Chase & Co JPM 2.23 33.1
Wells Fargo & Co WFC 2.76 37.72

Consumer Products

Industry giants Unilever (UL) and Procter & Gamble (PG) topped the consumer products sector, both with yields breaking past 3%. Also both are notably large companies holding a big range of branded products.

Stock Symbol Yield Payout Ratio
Unilever UL 3.4 76.92
Procter & Gamble Co PG 3.15 75.92

Tech

Tech leaders were IBM (IBM) and Microsoft (MSFT), with the latter providing lower yields (note that Microsoft is trading at all-time highs, and such rallies tend to drive yields down). A notable mention is Intel Corporation (INTC).

Stock Symbol Yield Payout Ratio
Intl. Business Machines IBM 3.3 45.64
Microsoft Corporation MSFT 2.48 74.64
Intel Corporation INTC 2.83 48.83

Telecommunication

Telecom dividend winners were AT&T (T) and Verizon (VZ), both offering decently high yields that even with some dividend cuts the investor will be left with a fair income.

Stock Symbol Yield Payout Ratio
AT&T Inc. T 4.74 83.4
Verizon Communications Inc. VZ 4.38 67.64

Retail

In the world of retail we have Walmart (WMT) and Target (TGT). It's a tough time for brick and mortar stores, but for investors who think these companies can still pull through, they may want to include one or both into their portfolio. Both have dividend yields in the range of 3%, and their EPS (Earnings per share) is higher than the dividend by a reasonable margin.

Stock Symbol Yield Payout Ratio
Wal-Mart Stores WMT 2.93 43.38
Target Corporation TGT 3.36 44.04