Well-established, dividend-paying companies have traditionally been referred to as widow-and-orphan stocks, because they provided their stockholders with a reliable dividend stream that could be counted on as a steady income. But while they may be given such a label, the fact of the matter is that many types of investors can probably improve their portfolios by including companies that make consistent dividend payments to shareholders. (To learn more about the benefits of dividends, check out Dividends Still Look Good After All These Years.)

IN PICTURES: 20 Tools For Building Up Your Portfolio

Advantages of Dividends
For starters, the obvious benefit of regular incoming cash received from dividend payouts should not be overlooked. Periodic dividend receipts not only provide stability to a portfolio's annual rate of return, but also provide emotional support and peace of mind for the individual investor. As the market turbulence of the past several years has illustrated, stocks can be prone to drastic short-term changes in value. When prices do happen to drop, dividend-paying stocks can often keep a portfolio on track - and keep an investor from succumbing to panic. (For more on this, check out How Dividends Work For Investors.).

Consistency Is Key
While a portfolio constructed of stocks paying sufficient dividend yields will likely experience less price volatility than the overall market, it is important to note that this benefit exists only as long as the dividends are being paid. If, for whatever reason, a company decides to decrease or stop its dividend payments to shareholders, its common shares no longer carry the advantages of a dividend-paying stock. (For more insight, see Your Dividend Payout: Can You Count On It?)

Thus, it is important for the individual investor to not only look for stocks that are paying high dividend yields now, but to also to attempt to select those that are likely to continue to consistently pay dividends for the foreseeable future. While it's impossible for the individual investor, or anyone for that matter, to predict the future, a good starting point is to focus on companies that have consistently paid stable, progressively increasing dividend amounts for many years. Fortune-telling aside, the longer a company has paid sizable dividends to shareholders, the better the chances it will continue to do so in the future.

With that in mind, here are five stocks that have both a relatively high current dividend yield as well as a history of dividend payout increases:

Company Dividend Yield (TTM) 5-Year Dividend Growth
Sunoco Logistics
(NYSE:SXL)
5.8% 11.7%
TELUS Corporation
(NYSE:TU)
5.1% 18.9%
Eli Lilly
(NYSE:LLY)
5.6% 6.4%
Barnes & Noble
(NYSE:BKS)
8.2% 17.1%
World Wrestling Entertainment
(NYSE:WWE)
9.1% 17.5%
Data as of market close July 20, 2010

Dividends for the Long Haul
Of the companies in this list, Barnes & Noble provides an interesting example of a divided-paying stock that offers both stability and potential for substantial returns to the individual investor. The stock has sold off sharply as of late, and is currently priced in the $12 range, while it sold for as much as $24 per share as recently as April of this year.

As a result of such a steep sell-off, the stock's dividend yield has increased substantially, and is currently sitting at 8.2% on a trailing 12-month basis. Founded in 1986, Barnes and Noble will likely be around for many years to come. As an additional form of stability, the stock generated $3.92 of levered free cash flow for shareholders in its trailing 12 months, which at a price level of $12.50 per share equates to an enormous free cash flow yield of 31.4%!

The Bottom Line
While dividends aren't the whole story when considering whether to buy a stock, a relatively high current dividend yield and solid history of consistent dividend payouts certainly increases a stock's attractiveness. Provided the dividend amounts remain stable and are not reduced in the future, they can be a rare source of support for the individual investor in an otherwise turbulent market. (For related reading, see The Power Of Dividend Growth.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  2. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  3. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  4. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  5. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  6. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  7. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  8. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  9. Investing

    Don't Freak Out Over Black Swans; Be Prepared

    Could 2016 be a big year for black swans? Who knows? Here's what black swans are, how they can devastate the unprepared, and how the prepared can emerge unscathed.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  4. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  5. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  6. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center