The 5 Dow Stocks Every Dividend Lover Should Own

AT&TMillions of investors have discovered how profitable dividend stocks can be. But you don't have to work hard to find great companies for your dividend portfolio.

Later on in this article, I'll give you the names of five stocks in the Dow Jones Industrials (^DJI) that I think you need to own if you're a true dividend investor. But first, I want to explain why your first instinct about finding the best dividend stocks is wrong -- and the better way to think about long-term dividend investing.

Why Growth Is the Key

The first thing that most investors look at with dividend stocks is their yield, because they give you a lot of income right now. Some dividend-payers yield as much as 20% or more right now.

But big dividends often simply disappear. The reason some stocks have such high yields is that they've had big drops in price. Investors expect a future dividend cut, so they sell their shares before the bad news comes. Then, when the dividend gets cut, the yield falls to a more reasonable level -- thwarting yield-chasers who bought solely for the big payout.

To avoid the disappointment of seeing your dividend go up in smoke, I recommend turning to companies that have long track records of solid dividends. In fact, a select group of stocks known as the Dividend Aristocrats hasn't just paid their investors year in and year out -- they've actually increased those payouts each and every year for at least a quarter-century, making it through financial crises and stock market crashes.

The Best of the Best in Dow Dividend Stocks

So which companies are among the cream of the crop for dividends? Here are the five stocks that combine those two attractive traits: high dividends and a consistent track record of gains.

1. AT&T (T)
Mobile giant AT&T is the top-yielding stock in the Dow, with a payout of almost 6%. But what many people don't know about AT&T is that it's boosted its dividend annually for 28 straight years. With another increase due to be paid Feb. 1, Ma Bell is poised to keep its place in the Dividend Aristocrats next year as well.

2. Johnson & Johnson (JNJ)
At some point during their lifetimes, just about everyone has used Band-Aids, baby shampoo, or Tylenol -- products that Johnson & Johnson has made for decades. Those products, along with medical equipment and other health-care needs, generate the huge sales volume that has allowed J&J to boost its dividend 49 straight years. And with a yield of 3.5%, the checks you get quarterly will mean no more tears when you open your brokerage statement.

3. Procter & Gamble
Like J&J, Procter & Gamble is a household staple, with Pampers, Gillette, and Tide among its best-known products. Yielding 3.2%, P&G has the longest dividend streak in the Dow at 55 years. And with its brand dominance in so many categories, P&G doesn't look like it'll lose its leadership role anytime soon.

4. McDonald's (MCD)
The family friendly fast-food giant has served generations of customers, and it's now a powerhouse with global reach, thanks to huge expansion in emerging markets like China. Paying 2.8% and boasting a 35-year record of annual dividend increases, McDonald's is a delicious addition to your dividend portfolio.

5. Coca-Cola (KO)
Nothing goes with a frosty beverage better than a 2.7% dividend yield. With nearly a half-century of annual payout increases behind the company, Coke is it for dividend investors as well as billions of thirsty customers.

If you love dividends -- and you should -- then these stocks have what you're looking for. Especially as Social Security and other sources of retirement income are in danger, building your own reliable source of income for your retirement is more important than ever.

Motley Fool contributor Dan Caplinger loves to see the money come in. You can follow him on Twitter here. He doesn't directly own the stocks mentioned in this article but has exposure to them through exchange-traded funds. The Motley Fool owns shares of Coca-Cola and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Procter & Gamble, Coca-Cola, Johnson & Johnson, and McDonald's, as well as creating a diagonal call position in Johnson & Johnson.

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Say you're sorry. Lord, I wish they'd bring back proofreaders!

January 16 2012 at 2:37 PM Report abuse rate up rate down Reply

Dividends are nice, however, based on your investment and the fact they are taxable, not a huge reason to own stocks, pay back is not certain, varies according to their profits, their huge salaries, perks, loaded costs cut into what they should pay, the little investor pays the tax, makes very little. Better option, tax free school bonds, off set your property taxes by making money that's tax free, stocks are too volitale, tax free is the way to go.

January 16 2012 at 10:39 AM Report abuse rate up rate down Reply

I own McDonalds and will be buying more as they split 3 for 1

January 16 2012 at 8:51 AM Report abuse rate up rate down Reply
1 reply to marine1942's comment

Watch out. OWS will getcha.

January 16 2012 at 8:34 PM Report abuse rate up rate down Reply
Don Adair

ugagentorange you are misinformed about corporate contributions to political campaigns. I has been going on for quite awhile. Our senator who was re-elected in 2008, got $48,450 directly from Citigroup, $39,232 directly from J.P. Morgan Chase, $34,000 directly fjrom Goldman Sachs, $17,000 from AIG, $16,000 from Morgan Stanley, and lesser amounts from many other corporations, not their employees. It is all legal. The amounts contributed, and by whom is public information. But that doesn't necessarily make it right. All of our senator's major contributors were corporations from out of state. I'll bet that yours likely were too, nicely bought and paid for. Check and see.

January 15 2012 at 4:00 PM Report abuse +1 rate up rate down Reply

I am not too fond of a public company contributing to political causes or charities for that matter. It is not thier money! The profits belong to the shareholders whether they be a teacher, plumber, executive or whatever. Now if the shareholders vote to do otherwise that is different.

January 15 2012 at 8:24 AM Report abuse +2 rate up rate down Reply
1 reply to Ameriburst's comment

Do you complain when unions contribute to political causes?

January 15 2012 at 12:32 PM Report abuse +3 rate up rate down Reply
1 reply to ugagentorange's comment

I am not sure how that works concerning unions. If the funds come out of dues without the members consent as to where or whom it is given yes I would think that would not be right. But on the other hand if the members voted on the dispersal so be it, it is their money. I have not been a member of a union so I do not know how that works.

January 15 2012 at 12:57 PM Report abuse rate up rate down
Don Adair

Can it be a coincidence that AT&T was also the largest single contributor to the 2008 election campaigns, giving a total of $45.6 million. This was more than Goldman Sachs at $35.7 million, Citigroup at $27.5 million, and J.P. Morgan Chase at $20.3 million. Even Lockeed Martin with $19.3 million didn't match AT&T's generosity. Buying political cooperation seems to pay real dividends. Is anyone surprised? The Wall Street Occupiers know this and that's what a good share of the Occupying Movement is about. Wall Street has bought our government and is reaping its favors.

January 14 2012 at 10:07 AM Report abuse -1 rate up rate down Reply
1 reply to Don Adair's comment

Wall Street Occupiers are clueless. Individuals have donated more to candidates than corporations. Corporations were not able to give in 2008, so your claim that AT&T donated $45 million in 2008 is felonious. Individuals who worked at AT&T gave that money....due to thousands of employees. AT&T itself did not make those donations in 2008.

the SCOTUS decision wasnt made until 2010.

January 15 2012 at 12:35 PM Report abuse +2 rate up rate down Reply
1 reply to ugagentorange's comment

If you are going to call someone else clueless, maybe you should not invent your own facts, or misuse words. Corporations did contribute to both political parties in 2008. And the word you were searching for was erroneous - no felonious.

fe·lo·ni·ous (f -l n - s). adj. 1. Law Having the nature of, relating to, or concerning a felony

Just trying to help, or someone might erroneously call YOU clueless.

January 16 2012 at 11:40 AM Report abuse rate up rate down