The stock market has been disappointing so far this year. Nearly all the major indices are flat.
Dividend stocks have been a great place to seek refuge from the poorly performing market. There are a number of companies paying a dividend yield that’s more than the 10-year Treasury note yield. But there are only a few that are also outperforming the market. Investors shouldn’t have to sacrifice capital gains for dividends.
The financial crisis forced many companies to become more innovative with growing their businesses. This includes dividend paying companies. There is still upside for companies that can innovate and successfully enter new markets.
Today I’ll present five stocks that will continue rewarding shareholders. Not only with their dividend yields, but also with capital gains.
5 Dividend Stocks That Are Set To Continue Outperforming The Market
Kimberly-Clark (NYSE: KMB)
Kimberly-Clark isn’t the most obvious name when investing in consumer products. Most investors think of Procter & Gamble (NYSE: PG) or Johnson & Johnson (NYSE: JNJ).
However, Kimberly-Clark is an industry leader across a number of categories, including personal care products, paper goods and diapers. A few of its key brands include Depends, Kotex, Cottonelle and Huggies.
Its dividend yield is 3%, which is above both P&G and Johnson & Johnson. The company has increased its annual dividend payment for 41 consecutive years.
Kimberly-Clark also has a strong international presence. This is one area where it can grow its business. This year it’ll launch product upgrades for diapers and personal care products across Brazil, Russia and China. And later this year it’ll spin-off its healthcare business and focus solely on its consumer and professional brands.
Reynolds American (NYSE: RAI)
It’s tough to find an industry that offers dividend yields as impressive as the tobacco industry. Reynolds American pays a 5% dividend yield and the industry average dividend yield is an impressive 3.2%.
Reynolds American not only offers a high dividend yield, but it has been outperforming the market on a multi-year basis. This should continue as Reynolds American continues to innovate. It’s set to launch new mint flavors for its Camel brand and will increase marketing of its natural brand, Natural American Spirit.
One of the hottest areas of the tobacco market is e-cigarettes. Annual e-cigarette sales could outpace traditional cigarette sales within a decade. Reynolds is well positioned in this market. It has developed its own patented vapor technology, used in its e-cigarette brand Vuse.
Its potential acquisition of other major tobacco company, Lorillard (NYSE: LO), is another big positive. It would make the combined company a powerhouse in the e-cigarette space.
Garmin (NASDAQ: GRMN)
Garmin offers one of the highest dividend yields in the tech products industry at 3.3%. And over the last five years, it’s managed to grow its annual dividend payout by 20% annually.
As GPS devices become standard in new cars, there is some concern that Garmin’s products will be irrelevant. However, its products are used for a variety recreational activities and not just auto navigation.
The company continues to expand and develop its portfolio. Its outdoor and fitness businesses have continued to grow over the last few years. Together, the two segments make up a third of the company’s business. A key area of interest for in the outdoor and fitness area that Garmin is focusing on is the action camera market. This is expected to be a billion market.
Merck (NYSE: MRK)
Merck is just one of many global pharma companies. But it’s also one of the biggest. Its dividend yield is 3.1%. That’s well above the pharma industry average of 1.7%. But it’s not just the dividend that makes Merck intriguing.
Emerging markets remains a key growth market for Merck, one that can help it to continue growing revenues. In emerging markets, the likes of cardiovascular disease and diabetes continue to be major issues. These are areas that Merck has strong products offerings. In 2013 it opened a China-based manufacturing facility. The plan is to commercialize pediatric and adult vaccines in the country.
Lockheed Martin (NYSE: LMT)
Lockheed Martin might not be the most obvious choice for market outperformance. The government budget cuts from last year’s sequestration put a damper on all companies that receive payments from the U.S. government.
However, the industry has gotten some relief. President Obama signed into law the $1.1 trillion Omnibus spending plan. This bill backed spending for one of Lockheed Martin’s key products, F-35 jets, through 2016.
Lockheed remains the largest defense contractor in the U.S. The company is sitting on a backlog of over $80 billion as of the end of 2013. That’s well above its $50 billion market cap.
The defense industry will continue to generate high levels of cash flow. Lockheed’s dividend yield is 3.3%. Over the last five years, Lockheed has grown its annual dividend payment by an annualized 20%. And it has raised its annual dividend payout for 11 straight years.
Investors love dividends. But why not invest in dividend stocks that can outperform the market? The select stocks above have strong dividends and are setup to outperform the market in 2014. This is a great combination for investors looking to build wealth.
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