I began this year looking to build a solid portfolio, and I believe I started it off right with my first selection. After establishing a solid foundation for my portfolio, I went looking for some dividend-paying stocks that not only paid solid dividends, but also had some room to grow the dividend over the life of my investment.
I first narrowed my list down to five, and now it is time to select the two I will be adding to my portfolio. After careful consideration, the next two stocks I'll be buying will be Waste Management (NYS: WM) and Ford (NYS: F) .
Hauling trash: the new utility
My selection of Waste Management was the easier decision of the two. I have had my eye on the company for about six months, and nothing has happened during that time for me to change my opinion. Nevertheless, I had also considered some of Waste Management's competitors in the trash-hauling business. My colleague John Grgurich recently pointed out some reasons to like Republic Services (NYS: RSG) , the second largest (by market cap) of the many trash haulers in the United States. I particularly liked that its dividend payout ratio was lower than my green-truck favorite. Alas, this is about dividends, and Waste Management currently yields nearly 1 percentage point higher than Republic, allowing me to push Republic aside for now.
One of the larger dividends in the waste management industry is French-based Veolia Environnement (NYS: VE) , which currently yields north of 13%. While this high yield may not last forever, Veolia has many long-term contracts throughout Europe to provide services, and recently scaled back operations in order to provide better services in fewer locations. Despite this, however, the continuing economic confusion in Europe gives me pause when considering European companies, so Veolia joins Republic Services on the trash heap.
U.S. automaker does good
Unlike Waste Management, which I compared with similar competitors, Ford was pitted against another company from my short list. Ford had the lowest payout ratio of the five on my original list, around 12% of last year's earnings, making it a company with plenty of room to grow its dividend. Despite selling fewer vehicles than rival General Motors, Ford posted a profit for the third consecutive year in 2011, primarily driven by sales in North America.
The company that I considered with Ford was computer giant Microsoft (NAS: MSFT) . With the second-lowest payout ratio of the five stocks considered, it has plenty of room to grow its already robust dividend. While not as sexy as Apple, Mr. Softy has entered our lives in interesting ways. It already makes the most-used operating system in the world, and Windows 8 could help Microsoft compete in a mobile computing world defined by tablets. A Kinect-enabled Xbox 360 has revolutionized console gaming and other home-based entertainment. What's not to like?
Ultimately, my decision between the two companies came down to one thing: leadership at each company. I have faith that Alan Mulally will continue to lead Ford forward, following his "One Ford" plan to even greater profitability. Microsoft CEO Steve Ballmer, on the other hand, seems reluctant to use employee collaboration to discover new products, which is something that competitors Apple and Google have been doing for quite some time. Even his employees don't think he's that great, with only 35% approving of the job that he has been doing, according to Glassdoor.com. This tipped the scale in Ford's favor, though Microsoft remains on my list as a potential investment in the future.
Other dividends out there, too
These companies are but two of the thousands of companies that pay dividends. Nevertheless, I like the prospects of both companies and will be adding them to my small portfolio when the Fool's trading rules allow me to do so. In the meantime, you can create your own short list of dividend payers by downloading a free copy of our report "Secure Your Future With 11 Rock-Solid Dividend Stocks." It's filled with great stocks from various industries that can truly boost your investment returns. Get your copy today before it's too late!
At the time thisarticle was published Fool contributor Robert Eberhard holds no position in any company mentioned. Feel free to follow him on Twitter. The Motley Fool owns shares of Ford, Waste Management, Google, and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Waste Management, Veolia Environnement, Republic Services, General Motors, Google, and Ford, as well as writing a covered strangle position in Waste Management, creating a bull call spread position in Microsoft, and creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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