3 Strong Dividends From the Market's Biggest, Best 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, this continuing article series will look at three stocks with generous, sustainable dividends from companies that look like they're going to be around a while.

Each is consumer facing, so the business model is easy to understand. Each is a Rule Maker in its market space that 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. Republic Services (NYS: RSG)
You probably don't think of garbage very often, but when you do, the company the one that most likely comes to mind is Waste Management (NYS: WM) and its signature green trucks. A company that's lower on the rubbish radar, but just as good an investment and with just as bright a future in trash, is Republic Services.

With a $10.8 billion market cap, Republic isn't valued as highly as Waste Management, but the company is still plenty big, offering service to customers throughout the eastern half of the U.S. and the west coast. And since rubbish collection is as much of a necessity for human civilization as water, sewage, and electricity, it should be clear why a well-managed company like Republic Services will be around for a long time to come. By the numbers:

  • We like to see dividend yields of around 3% (an arbitrary threshold, but one we feel separates the wheat from the chaff). Republic Services' 3.0% just makes the grade. Rival Waste Management comes in at a significantly nicer 3.9%, but that isn't a deal-breaker for Republic.

  • We like to see dividend payout ratios of 50% or less (the lower the percentage, the more sustainable). At 57%, Republic is higher than we like, but not grossly so. And Waste Management comes in at a significantly higher 65% on this important metric.

  • And as of their most recent earnings report, the company's gross margin, an indicator of brand strength and pricing power, is 40.8%. Not killer, but better than Waste Management's 36.6%.

  • Finally, while Republic's quarterly revenue only grew a modest 2.6% YOY, earnings jumped a massive 44.2% YOY. Well done.

Republic trades for an affordable $29, so you can load up on shares, with a P/E of 20. Not cheap, but you're getting a lot of company for the multiple. Like your water or electric company, Republic Services provides a basic service we humans can't live without, has a booming bottom line, and pays a generous dividend.

2. Dominion Resources (NYS: D)
Dominion Resources, based in Richmond, Va., is a big utility. It has 27,500 megawatts of power-generation capacity, 2.4 million electric utility customers in Virginia and North Carolina, and 1.2 million natural gas utility customers in Ohio. Plus, it has 6,000 miles of electric transmission wires and 14,000 miles of natural gas pipeline, along with the nation's largest natural gas storage facility and 1.1 trillion cubic feet of proven natural gas reserves.

Given its size and the fact that it delivers services that customers rely on, the company's not going anywhere, anytime soon. By the numbers:

  • We said we like to see yields of around 3%. At 4.3%, Dominion easily makes the grade. Southern Company (NYS: SO) , another great dividend stock that's been covered in this column, comes in just a hair lower on this metric, at 4.2%.

  • Dominion's payout ratio is a seemingly high 74%, well above our 50% cutoff point, but actually quite normal for a utility. Southern Company compares well at 73%.

  • The company's gross margin is 37% TTM, very much in line with the rest of the industry. For instance, Southern's is currently 38.7%.

Dominion's stock trades for an affordable $49 at a slightly high P/E of 19. But with its healthy dividend and strong position in its market space, you're getting a lot of company for the multiple. Dominion will be delivering both power and investor profit for a long time to come.

3. H.J. Heinz (NYS: HNZ)
Heinz is one of the world's leading marketers and producers of healthy, convenient, and affordable foods, specializing in sauces, meals, soups, snacks, and infant nutrition. Heinz Ketchup -- of which there is likely no stronger brand -- aside, other top brands for the global-foods giant include Ore-Ida, Weight Watchers, T.G.I. Friday's Snacks, and Plasmon infant nutrition.

By the numbers:

  • The stock's dividend yield is 3.7%, easily topping our goal of 3%.

  • The payout ratio is 63%, more than we'd like to see, but not a show-stopper.

  • The gross margin is 36.2% TTM, which compares well with the rest of the industry.

  • Finally, Heinz's quarterly revenue growth YOY is a healthy 8.3%.

The stock itself trades for an affordable $51, with a still reasonable P/E of 17. Heinz is a monster global brand that pays a great dividend with healthy growth on the books. When times get tough, families may skimp on certain things, but their brand of ketchup? Never.

11 More Rock-Solid Dividend Stocks
There you are: three great 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." To get your copy while it's still available, simply click here now.

At the time thisarticle was published

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