The 5 Dow Stocks Every Dividend Lover Should Own

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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.

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3. Procter & Gamble
(PG)
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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