The Best Conservative Dividend Paying Stocks

by Tim Plaehn ; Updated July 27, 2017

Dividends are an important component of the total return from stocks, especially for long-term investors. For the 30-year period from 1980 through 2010, dividends accounted for 27 percent of the total return of the S&P 500 companies. Investing in only dividend-paying stocks would boost the return from dividends even higher.

Dividend Payout Ratio

You can evaluate possible conservative dividends stocks using two main criteria. The dividend payout ratio is the portion of net earnings a company pays as dividends. For example, assume a company has $2 per year in earnings per share and currently pays a 25 cents quarterly dividend for a total of $1 per year. The payout ratio is 50 percent. A lower payout ratio means the company can support the dividend even if earnings decline and leave room for future dividend increases. A high payout ratio means the company is paying most of the net income out as dividends, leaving little money for reinvestment for future growth.

Growing Dividends

As the second criteria, look for companies with a history of increasing dividends. As profits grow year after year, the best conservative dividend stocks show a history of steadily increasing dividends. For example, Walgreens (stock symbol WAG) has paid an increasing dividend for at least 35 straight years. Stocks with a history of growing dividends have a lower current dividend yield than high payout stocks. Investors expect to be paid with increasing dividends over the years.

Blue Chip Stocks

The stocks and companies that meet the criteria as conservative dividend paying stocks often are what are considered to be blue chip stocks. These are large companies with long histories of selling well known products. Companies such as 3M, Clorox, Exxon and Walmart are blue chip stocks. Other areas that may yield conservative dividend stocks are manufacturing or service companies whose customers are other large businesses.

Dividend Aristocrats

A good starting place to research dividend stocks is the Standard & Poor's list of Dividend Aristocrats. The list consists of the S&P 500 companies that have paid an increasing annual dividend for at least 25 years. In 2011, the list included 41 blue chip companies, including the stocks discussed in the previous section of this article. An investor should evaluate each company for prospects of future earnings and revenue growth, dividend payment history and the current dividend yield.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.