3 Strong Yields From the Market's Biggest and Brightest Companies

High-yield dividend stocks are all well and good, so long as the dividend is sustainable and the company sticks around long enough to keep paying them out. In an economy like the one we're in, that's not necessarily a given. In that spirit, following are three stocks with generous, sustainable dividends and businesses that look like they're going to be around a while.

Each is consumer-facing, so the business model is easy to understand. Each dominates its market space and knows how to make, market, and distribute its products with machine-like efficiency. And each is a profit-making dynamo, producing low-priced goods that people around the world need to buy over and over.

Without further ado, then ...

1. Intel (NAS: INTC)
If you're reading this on a computer, chances are that it uses an Intel semiconductor. The company has some competition in Advanced Micro Devices (NYS: AMD) , but really, Intel dominates the market. And since the chip in your computer becomes obsolete about every two years, you're compelled to buy a new machine on roughly the same schedule.

Thus, computers, and the chips that drive them, are perfect examples of mass-market items that need to be replaced again and again. As such, Intel's not going anywhere, anytime soon. By the numbers:

  • We like to see dividend yields of around 3% (an arbitrary threshold, but one we think separates the wheat from the chaff). Intel's 3.7% tops this nicely. AMD doesn't even pay a dividend.

  • We like to see dividend payout ratios of 50% or less (the lower the percentage, the more sustainable). At 32%, Intel comes in comfortably under our benchmark.

  • And as of its most recent earnings report, the company's gross margin, an indicator of brand strength and pricing power, is a whopping 63%. The top and bottom lines have also grown significantly over the past year, with 21% growth in trailing-12-month figures for both metrics.

The stock trades for an affordable $23, so you can load up on shares, with a very reasonable P/E of 10. Mass-market appeal, strong pricing power, exceptional top and bottom lines, and a generous, sustainable dividend. What's not to like about Intel?

2. Microsoft (NAS: MSFT)
It's so easy to underrate this tech-industry stalwart. But the fact is, similar to Intel, chances are that you have Microsoft products on your computer, whether it's the company's Windows operating system or the word-processing or spreadsheet software you use.

No matter how much more elegant and cool Apple's products are, or how ironclad the predictions of the PC's imminent demise seem, Microsoft is still the 800-pound gorilla on the digital block. The company continues to effortlessly rake in profits year after year. As such, its death has been greatly exaggerated. By the numbers:

  • We said we like to see yields of around 3%. At 3.3%, Microsoft easily makes the grade.

  • The company's payout ratio is a very healthy 23%, well below our 50% cutoff point. Well done.

  • And as of its most recent earnings report, the company's gross margin is an almost unheard of 76%.

  • Finally, Microsoft's top line grew by a healthy 8%, and the bottom by a reasonable 14%, both using trailing-12-month figures.

The stock trades for an affordable $25 at a very reasonable P/E of around 9. With its crushing gross margin, solid top and bottom lines, and very sustainable dividend, Microsoft is one of the world's most powerful brands and market space dominators. Thank you, CEO Steve Ballmer.

3. Johnson & Johnson (NYS: JNJ)
Band-Aid. Listerine. Tylenol. Neutrogena. Motley Fool Income Investor's James Early sums it up best when he says, "The company is a blue chip among blue chips. Owning J&J is like owning a basket of first-rate health care companies."

From the personal-care products and over-the-counter medicines so familiar to consumers, to the prescription drugs and surgical implants working hard behind the scenes, Johnson & Johnson is a powerhouse in the field of medicine. By the numbers:

  • The stock's dividend yield is a nice 3.7%, easily topping our benchmark 3%.

  • The payout ratio is 54%, just a hair over our upper limit of 50%, so we won't ding the company for it.

  • The gross margin for the most recent quarter was a whopping 68%, versus 60% for peer Abbott Laboratories (NYS: ABT) and 57% for Covidien ( NYSE: COV).

  • Finally, while revenue for the past 12 months is up around 3%, J&J's net profit was down about 16% from last year. Some of this is due to one-time items, and as the company has raised guidance for fiscal 2011, we can expect earnings to be back on pace for the fourth quarter.

The stock trades for a not-outrageous $63, with a still reasonable P/E of 15. J&J is the king of its market space, with a great gross margin, a strong top line, and a very generous, sustainable dividend. Keep your enemies close and your Band-Aids closer, Fools.

Inescapably Foolish bottom line
There you are: three killer companies with stocks that offer some of the market's best, most sustainable dividends. For the scoop on 11 more great dividend stocks from rock-solid companies, read this brand-new Motley Fool special free report: "Secure Your Future With 11 Rock-Solid Dividend Stocks." Get your copy while it's still available.

At the time thisarticle was published Fool contributorJohn Grgurichbelieves in keeping his enemies close and his Listerine closer, but he owns no shares of any of the companies mentioned in this column. The Motley Fool, however, owns shares of Abbott Laboratories, Apple, Microsoft, Intel, and Johnson & Johnson, as well as having bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Intel, Johnson & Johnson, Abbott Laboratories, Apple, Covidien, and Microsoft, as well as creating bull call spread positions in Apple, Intel, and Microsoft and a diagonal call position in Johnson & Johnson. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a scintillatingdisclosure policy.

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