BUYER’S GUIDE TO THE BEST DIVIDEND AND INCOME INVESTMENTS

BUYER'S GUIDE TO

THE BEST DIVIDEND AND INCOME INVESTMENTS

1st Quarter 2014

1st Quarter 2014

1

Table of contents

Cashing in on cash flow ..................................................... 5 Seeking yield via dividend growth ..................................... 6 Win with consistent income .............................................. 8 Dividends growing with more in store ............................. 10 In search of dividend growth ........................................... 12 Should you buy high-yield stocks? .................................. 13 Limit risk, keep the return ............................................... 14 Small stocks for income investors .................................... 16 Playing the yield field ....................................................... 17 How to build a portfolio ................................................... 20 Diversification with dividends ......................................... 22 To gauge dividends, look at payout ratio ......................... 24 Pick big dividend growth over high yield ........................ 26 Income options for the Dow ............................................ 27 Finding safe, growing dividends ...................................... 28 Utility ratings ................................................................... 30 Utility Q&A ...................................................................... 32 Utilities safer in numbers ................................................. 34 Dividends every month .................................................... 36 Not your father's DRIPs .................................................... 38 ETFs with high yields, low costs ...................................... 40 Directory of no-load stock programs ............................... 41 Dividend aristocrats ......................................................... 44 Munis less taxing .............................................................. 46 Alternatives to bond funds ............................................... 49 Directory of dividend information for S&P 500 stocks ... 50

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In search of dividend growth

We don't make investment decisions based solely on dividend yield. But that doesn't mean we dislike dividends. In truth, we love dividends, assuming they are well covered by earnings and likely to grow over time. While we typically don't recommend any stocks with 4% yields, we're finding appealing stocks with solid yields that can afford to keep boosting the payout.

Our highest-yielding recommended stocks typically have payout ratios below 50%, meaning they pay out less than half of their profits in dividends. The lower the payout ratio, the more flexibility the company has to tackle financial or operating problems -- without cutting the dividend.

The table below lists stocks with a history of dividend hikes and the wherewithal to continue growing the payout. Below those dividend growers, we also present attractive picks that yield 2.0% or higher. Below, we review a notable pick. U.S. Bancorp ($40; USB) has more than quadrupled its quarterly dividend from the $0.05 it paid during 2009 and 2010. While the dividend hasn't climbed to prerecession levels, U.S. Bancorp's payout ratio of 31% suggests more growth is in store. The company is augmenting its dividends with share buybacks.

TOP DIVIDEND PLAYS

Company (Price; Ticker)

Dividend growers

Accenture ($82; ACN) BlackRock ($316; BLK) CSX ($29; CSX) Deere ($91; DE)

Div. 5-Yr. Ann. Payout Est. L-T Div. Yield Div. Growth Ratio Profit Growth Sector

$1.86 2.3% 28% 44% 10% Technology

6.72 2.1

17

43

14

Financials

0.60 2.1

20

32

11

Industrials

2.04 2.2

13

22

9

Industrials

Helmerich & Payne ($84; HP) 2.50 3.0

36

44

8

Energy

Microsoft ($37; MSFT)

1.12 3.0

16

41

8

Technology

Norfolk Southern ($93; NSC) 2.08 2.2

12

38

12

Industrials

Walgreen ($57; WAG)

1.26 2.2

23

39

13

Cons. Staples

High-yield stocks

Aflac ($67; AFL)

1.48 2.2

9

24

7

Financials

Boeing ($136; BA)

2.92 2.1

4

45

11

Industrials

Intel ($26; INTC)

0.90 3.5

12

48

11

Technology

J.P. Morgan Chase ($58; JPM) 1.52 2.6

-3

25

6

Financials

Medtronic ($57; MDT) Travelers ($91; TRV) U.S. Bancorp ($40; USB) Wells Fargo ($45; WFC)

1.12 2.0

12

29

2.00 2.2

10

27

0.92 2.3

-13

31

1.20 2.6

-3

32

7

Health Care

9

Financials

6

Financials

8

Financials

12

1st Quarter 2014

Playing the yield field

Investors in common stocks may pay a steep opportunity cost for fleeing to the safety of 10-year Treasury notes, which pay a miserly 2.8% yield.

Low money-market and bond yields are encouraging income investors to explore other pastures. And while the Forecasts favors common stocks with decent yields and strong dividend-growth potential, we occasionally write about preferred stocks, master limited partnerships (MLPs), and royalty trusts. These asset classes are very different from traditional common stocks, and not only because they often pay yields of more than 5%. Here are a few other things to consider about each investment vehicle before going after the income:

MLPs

MLPs collect cash flows from tangible assets, such as real estate or energy pipelines. MLPs are run by general partners, who typically own a small stake in the entity. Limited partners buy units -- rather than shares -- that trade on stock exchanges.

Three main factors contribute to MLPs' high yields. First, MLPs are

TRUSTS AND PARTNERSHIPS

Company (Price; Ticker)

Royalty Trusts BP Prudhoe Bay Royalty ($80; BPT) Cross Timbers Royalty ($29; CRT) Enduro Royalty ($12; NDRO) Hugoton Royalty ($8; HGT) Sabine Royalty ($51; SBR)

Master Limited Partnerships Alliance Holdings ($59; AHGP) Alliance Resource ($77; ARLP) Amerigas Partners ($45; APU) Blackstone Group ($32; BX) Boardwalk Pipeline ($26; BWP) Buckeye Partners ($71; BPL)

Calumet Specialty Prods. ($26; CLMT) El Paso Pipeline Partners ($36; EPB) Kinder Morgan Energy ($81; KMP) KKR ($24; KKR) Plains All Amer Pipeline ($52; PAA) Sunoco Logistics Partners ($75; SXL)

??? Estimated ??? Dividend Yield

$9.25 2.29 1.61 0.86 4.35

11.6% 7.8 13.3 11.5 8.6

3.23

5.5

4.70

6.1

3.36

7.5

1.18

3.7

2.13

8.3

4.30

6.1

2.74

10.5

2.60

7.2

5.40

6.7

1.62

6.7

2.46

4.8

2.52

3.3

Industry

Oil & Gas Exploration Oil & Gas Exploration Oil & Gas Exploration Oil & Gas Exploration Oil & Gas Exploration

Coal & Consum. Fuels Coal & Consum. Fuels Gas Utilities Asset Management Oil & Gas Storage Oil & Gas Storage

Oil & Gas Refining Oil & Gas Storage Oil & Gas Storage Asset Management Oil & Gas Storage Oil & Gas Storage

1st Quarter 2014

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Directory of no-load stock programs

U.S. firms which permit initial purchases directly

Stock (min. initial investment)

Phone

Symbol

Amstock --

Acadia Realty ($250) ................. 800-278-4353 ......AKR Air Products ($500) ................... 877-322-4941 ......APD AMCOL International ($250)....... 888-444-0058 ..... ACO American Water Works ($100).... 888-556-0423 .....AWK AMETEK ($250)......................... 877-854-0864 ..... AME Anworth Mtg. Asset ($1,000) ..... 877-248-6410 .... ANH Arrow Financial ($300)............... 800-937-5449 .. AROW Atmos Energy ($1,250).............. 800-543-3038 ......ATO Badger Meter ($100) ................. 877-248-6415 ...... BMI Bob Evans Farms ($250)............ 800-937-5449 ....BOBE Brookline Bancorp ($250) .......... 800-278-4353 ....BRKL Buckeye Partners ($250)........... 877-724-6457 ...... BPL California Water Service ($250).. 888-888-0316 .....CWT Cardinal Financial ($250)........... 877-814-9740 ....CFNL Carpenter Technology ($250) ..... 800-278-4353 ......CRS Carriage Services ($250) ........... 877-611-8040 ......CSV Chase Corp. ($250) ................... 800-278-4353 ......CCF Columbus McKinnon ($250)...... 800-278-4353 .. CMCO Community Bank Sys. ($250) .... 800-278-4353 ..... CBU Cracker Barrel ($250)................. 800-278-4353 ....CBRL Dime Community ($300) ........... 800-278-4353 .. DCOM Duke Realty ($250) .................... 800-278-4353 ......DRE Dunkin' Brands ($250)............... 800-937-5449 ... DNKN Eastern ($250)........................... 800-278-4353 ..... EML Eastman Chemical ($250).......... 877-322-4908 .....EMN Education Realty ($300)............. 866-659-2645 ......EDR Equifax ($500) ........................... 866-665-2279 ...... EFX FBL Financial ($250) ................. 866-892-5627 ...... FFG Federal Realty ($250)................. 877-611-8039 .......FRT Fifth Third Bancorp ($250) ......... 888-294-8285 ..... FITB First Niagara Fin'l ($250) ........... 877-785-9670 ....FNFG Horace Mann Educators ($250).. 877-295-6910 .... HMN Infinity Property ($250) .............. 866-624-4112 .....IPCC Integrys Energy ($100)............... 800-236-1551 ...... TEG Intersil ($250)............................ 877-208-9537 ..... ISIL Jeffersonville Bancorp ($250) .... 800-278-4353 .... JFBC L Brands ($200)......................... 866-875-7975 ......LTD Microsoft ($250)....................... 800-285-7772 ... MSFT National Retail Prop. ($100) ....... 800-278-4353 ..... NNN Norfolk Southern ($250) ............ 877-864-4750 ..... NSC Northwest Natural Gas ($250) .... 888-777-0321 .... NWN Paychex ($250)......................... 877-814-9688 .... PAYX Peabody Energy ($500).............. 866-621-2789 ......BTU PG&E ($250)............................. 888-489-4689 ..... PCG Resource Capital ($100) ............ 866-709-7699 ......RSO Sempra Energy ($500)............... 877-773-6772 ......SRE Skyworks Solutions ($1,000) ..... 877-366-6437 ...SWKS Spartan Motors ($250)............... 888-888-0145 ....SPAR State Street ($250)..................... 800-278-4353 ...... STT Synovus Financial ($250) .......... 888-777-0322 ......SNV Teleflex ($250)........................... 800-278-4353 .......TFX Tompkins Financial ($100)......... 877-573-4008 ..... TMP Total System Services ($250)..... 877-833-6707 ...... TSS Trustmark ($250) ....................... 877-476-4393 ... TRMK UIL Holdings ($250) .................. 800-278-4353 ....... UIL World Wrestling ($250).............. 888-556-0424 ... WWE York Water ($500)...................... 877-739-9990 ...YORW

Stock (min. initial investment)

Phone

Symbol

Yum! Brands ($250)................... 888-439-4986 .....YUM Zep ($250) ................................ 877-842-1551 ...... ZEP

Broadridge -- stockplans.

Avery Dennison ($500) .............. 877-498-8861 ...... AVY Chubb ($200)............................ 866-232-3039 ........CB CSX ($500) ............................... 800-521-5571 ......CSX Curtiss-Wright ($250)................ 800-278-4353 .......CW Disney (Walt) ($250) ................. 855-553-4763 .......DIS KMG Chemicals ($200) ............. 877-830-4936 .....KMG Spectra Energy ($250) ............... 855-277-3287 ........ SE

Computershare --

AbbVie ($250) ........................... 877-881-5970 ....ABBV Acuity Brands ($500)................. 800-432-0140 ....... AYI Aetna ($500) ............................. 800-446-2617 ...... AET Agilent ($500) ........................... 877-309-9856 .......... A Alaska Commun. ($250) ............ 877-870-2426 ....ALSK Allegheny Technologies ($250).. 800-406-4850 ....... ATI Altria ($500) .............................. 800-442-0077 .......MO American Capital ($250) ............ 800-733-5001 ... AGNC American Electric Pwr. ($250).... 800-328-6955 ...... AEP American Express ($1,000)........ 800-463-5911 ......AXP American States Water ($500).... 888-816-6998 .....AWR Ameriprise Financial ($1,000)... 866-337-4999 ... AMP Andersons ($250) ..................... 312-360-5260 . ANDE Aon ($250) ................................ 800-446-2617 ..... AON Applied Industrial Tech.($250) ... 800-988-5291 ....... AIT Aqua America ($500)................. 800-205-8314 .... WTR Arthur J. Gallagher ($250).......... 312-360-5386 ...... AJG AT&T ($500).............................. 800-351-7221 .......... T Avis Budget Group ($250).......... 800-522-6645 ......CAR Avista ($250)............................. 800-642-7365 ......AVA Avon Products ($500) ................ 800-446-2617 ......AVP Baker Hughes ($500)................. 888-216-8057 .......BHI Bank of America ($1,000) .......... 800-642-9855 ......BAC Bank of NY Mellon ($1,000)....... 888-643-4269 ........BK Bank of SC ($250) ..................... 800-568-3476 ... BKSC Banner ($250) ........................... 800-697-8924 ... BANR Bard (C.R.) ($250)..................... 800-446-2617 ......BCR Barnes Group ($250) ................. 800-801-9519 .......... B BB&T ($250) ............................. 800-213-4314 ...... BBT Becton, Dickinson ($250) .......... 877-498-8861 ......BDX Best Buy ($500)......................... 877-498-8861 .....BBY BioMed Realty ($100)................ 800-524-4458 .....BMR Blyth Inc. ($250)........................ 800-446-2617 ......BTH BorgWarner ($500) .................... 800-851-4229 .....BWA Boston Beer ($500).................... 888-877-2890 .....SAM Boston Properties ($250)........... 888-485-2389 ......BXP Brown Shoe ($250).................... 866-865-6319 .....BWS Brunswick ($500) ...................... 800-546-9420 ........BC Buckle ($500)............................ 800-884-4225 ...... BKE Calamos Asset Mgt. ($200) ....... 800-432-8224 ...CLMS Campbell Soup ($500) .............. 800-780-3203 ......CPB Cash America ($250)................. 800-542-7530 ..... CSH Cass Info. Systems ($250)......... 866-323-8170 ... CASS Caterpillar ($250) ...................... 866-203-6622 ......CAT Chevron ($250) ......................... 800-368-8357 ......CVX Church & Dwight ($250)............ 866-299-4219 ..... CHD

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