Consistent dividends for peace of mind.

s&p-500-dividend-stocksFor the most part, dividend stocks aren’t that difficult to find or to choose.  There’s very little that can go wrong, from a dividend standpoint, with the most famous brand names in the S&P 500.  The problem I have with some of these alleged “no-brainer” dividend stocks is that while the dividends are safe for the long term, the businesses themselves aren’t really growing, and mask weak EPS growth with share repurchases.

Instead, I like to dig a little deeper into the index.  There are plenty of dividend stocks that have a long history of paying dividends, a long history of increasing dividends, and a long history of just being good businesses.  They sometimes get overlooked by conservative investors, while others avoid them because they just aren’t big names that have been around for 100 years.

Here are four suggestions for S&P 500 dividend stocks that I would feel safe owning, whether part of a retirement portfolio, or a long-term diversified portfolio.

1. Health Care REIT, Inc. (NYSE: HCN)

What more generic corporate name can you find but Health Care REIT, Inc. (NYSE:HCN)?  This 44-year-old firm diversifies its real estate investments across the healthcare spectrum, with ownership in senior living communities, in/outpatient medical centers, life science facilities, and medical office buildings.

I like HCN stock because it belongs to what mutual fund guru Ron Baron calls a “sunrise industry”, an industry closer to its beginning than its end.  We have a baby boomer population that is aging and all these folks will be retiring and in need of healthcare.  Moreover, HCN is geographically diversified with holdings in the US, UK, and Canada.

It is one of the most reliable dividend stocks in existence, having made good on paying out for…get this…45 straight years.  Currently, it yields 5%, and with cash flow in good shape, that isn’t going to change.

2. Ensco plc (NYSE: ESV)

Ensco plc (NYSE:ESV) is one of the premier oil drillers in the world.   With 74 rigs located across the entire world, in all the major oceans, Ensco’s 9,000 employees continually provide the world with energy.

I happen to love Ensco not only because of its business strength, but because the market always overreacts when cash flow drops.  Of course cash flow is going to drop – drilling is linked to energy demand and the state of the economy.  But the fact that Ensco survived the financial crisis just fine, and that there isn’t likely going to be another one that bad, suggests that price declines provide opportunity to invest.

Right now, for example, the company is trading at about 65% of its traditional price-to-cash flow ratio.  It has a 5.4% yield and I would have no problem owning it here and beyond.

3. Frontier Communications (NYSE: FTR)

Frontier Communications (NYSE:FTR) has been on a roller-coaster ride since its inception in the 1970’s.  As a rural telecom firm, it has to constantly upgrade its systems and infrastructure by drawing down debt, sometimes in excess of what the big telecoms do.

Yet, Frontier soldiers on.  If it can’t upgrade its own infrastructure, it acquires someone else who can provide it.  Frontier’s ability to stay on the frontier of telecom makes some investors unhappy, so the stock seems to always be under pressure.  Its dividend history has been all over the place – decreasing, increasing, skyrocketing, then being cut.  Yet no matter what, it pays something every year.  At this price, I think it’s a bargain, and I think the 7% dividend is sustainable.

4. Kinder Morgan Partners, L.P. (NYSE: KMP)

Kinder Morgan Partners, L.P. (NYSE:KMP) remains the 800-pound gorilla in the energy pipeline sector.  Its 33,000 miles of natural gas pipelines, 8,600 miles of petroleum pipelines, and its oil fields make it the single great play in energy.

As its latest quarterly earnings demonstrate, growth remains strong, and we look at cash flow to measure that growth. Distributable cash flow – meaning the money paid to investors as dividends – grew 11% over last year.  Consequently, KMP increased its quarterly distribution 5% to $1.39 per share, which is just about a 7% yield.

I think you’ll do well with all of these selections over the long term, and enjoy higher-than-average dividends along the way.

Lawrence Meyers does not own shares in any company mentioned.

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