Some Select Dividend Stocks

 | Sep 09, 2013 | 5:30 PM EDT
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We believe the recent selloff in a number of higher-yielding stocks will be the pause that refreshes.

Dividend stocks have been on a tear over the past two and one-half years, significantly outperforming the broader market averages. The current weakness should create an array of good opportunities to buy a number of solid businesses that are growing, pay a very healthy dividend and which should have nice appreciation over the next 6-to 12-months.  

We highlight below a basket of six stocks that provide solid 3%+ dividend yields. In addition to the healthy current income, we expect the dividends (on average) to grow by 5% to 7% over the next two to three years. We also believe the stocks should provide much better-than-market downside protection in the event of a market sell-off due to reasonable valuation levels, high dividend yields and below market Betas. 

The list of highlighted stocks is as follows: 

Kimberly-Clark (KMB) is a leading consumer products manufacturer with strong global positioning in consumer tissue products and diapers. The shares are off close to 15% from their recent high, trade for a reasonable 17.6x current earnings and provide a 3.39% dividend yield.

Coca-Cola (KO) is the world's largest consumer beverage manufacturer under such iconic brands as Coke, Powerade and Dasani. The shares are off close to 13% from their recent high, trade for a reasonable 17.7x current earnings and provide a 3.08% dividend yield.

Du Pont (DD) is a leading global chemical and life sciences manufacturer. The shares are reaching new all-time highs due to the company's strong operating execution, improved business mix and better than expected capital allocation policies. The shares trade for a reasonable 15x current earnings and provide a 3.16% dividend yield. In addition, activist investor, Nelson Peltz's Trian Fund Management has taken a sizeable position in the stock and is pushing management and the board to engage in actions that enhance shareholder value.

Johnson & Johnson (JNJ) is a leading healthcare products manufacturer with a strong global positioning in pharmaceuticals, medical devices and consumer products. The shares are off close to 7% from their recent high, trade for a reasonable 15.9 times current earnings and provide a 2.99% dividend yield.

McDonald's (MCD) is the world's largest fast-food restaurant operator and franchisor. The shares are off close to 8% from their recent high, trade for a reasonable 17.1x current earnings and provide a 3.23% dividend yield. We are looking for the board to increase that already healthy dividend later this month.

Royal-Dutch Shell - ADR - B Shares (RDS-B) is a leading globally integrated energy company. The shares are off close to 8% from their recent high, trade for an inexpensive 8.7x current earnings and provide a 5.3% dividend yield. We think the upcoming change in the CEO could lead to better things. 

Each of these companies has a strong global business franchise, a highly regarded management team, an investment grade balance sheet and a shareholder-driven agenda. The favorable dividend yields, reasonable valuation levels and below-market Beta ratios will provide investors with better-than-market downside protection while at the same time providing above average yields and long-term capital appreciation potential. It makes a lot of sense for investors to look through this group for new dividend-oriented investment ideas.



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