5 Top Paying Dividend Stocks

5 Top Paying Dividend Stocks for Secure Profits

Everyone loves income. It used to be that all publicly traded companies paid dividends as a matter of policy ? to reward the company's owners for their equity investment. In return for their capital, investors would receive cash flow every quarter in the form of dividends.

Many investors don't know this, but dividends have been an important source of investment return. According to Forbes magazine, since 1926 dividends "have accounted for more than onehalf of the total return from investing in stocks."

These days, many companies don't pay dividends, and very few pay a dividend that's worth our attention. But the companies that CAN pay dividends are frequently among the best-performing companies in the stock market.

Dividends are tangible. An enterprising corporate accountant can't fake a dividend. Earnings, wages, revenue, taxes, accounts payable, accounts receivable, business write-offs ? all these entries can be manipulated to the point that an investor can spend hours poring over financial statements to ensure what's reported is real.

But you can't fake a cash payment ? either you have the cash or you don't.

Given all the uncertainty surrounding the stock market, it seems all the sweeter to quickly and regularly recoup a portion of your initial investment in dividend income. At the least, it makes it easier to tolerate uncertainty and market volatility.

That's why I've put together this report that features five of my favorite dividend- paying stocks. These companies pay dividends that generate yields between 3% and 8.2% for shareholders.

These dividend-paying companies offer superior yield, yet they offer the added benefit of exposure to growth sectors of the economy. You could say that they offer the best of both worlds ? solid dividends and growth potential.

Dividend Stocks Shine in a Low Interest Rate Environment

Given current market volatility, "safer" income-generating investments are increasingly being considered by smart investors who want to reduce their portfolio risk.

There was a time, not so long ago, when investors seeking safe, dependable income with little volatility would have constructed a portfolio dominated by Treasury bills and certificates of deposit (CDs).

But those options have been cleared away by the Federal Reserve, thanks to its low interest rate policies.

Even though the Fed is widely expected in begin increasing interest rates soon, markets will likely remain in a low interest rate environment for the foreseeable future.

While artificially low interest rates may help some businesses seeking capital to expand, or consumers borrowing to purchase a big-ticket item like a car or a home, for savers, these low interest rates have made life difficult. There is simply no income from investing in high-quality debt to meet their income needs.

Low interest rates continue to encourage businesses and consumers to borrow, and to penalize those who save. With interest rates so low, investors can't get a decent return in the conventionally "safe" investments.

Gone are the days that a retiree could rely on a fixed-income portfolio supplemented by Social Security and Medicare to ensure a comfortable retirement. Many people these days are scrounging to come up with the money just to pay their monthly bills.

Not surprisingly, more investors are turning to dividend-paying stocks to generate the income that used to be available in traditional fixed-income investments.

This makes sense; the stronger companies in the S&P 500 offer dividend yields that are two to three times that of a triple-A rated bond. Not only will you avail yourself to consistent, reliable dividends, you'll also establish an equity stake, which canlead to greater wealth. The better dividend-paying stocks continually raise their dividend payouts, which leads to a higher share price because investors are willingto pay more for a rising income stream.

To be sure, a healthy dividend check is no guarantee that the share price won't stagnate, but dividend-paying companies are less volatile than their no-dividend- paying counterparts.

The bottom line is that dividends are money in your pocket. There's no room for empty promises or accounting tricks. The dividend is paid, or it isn't. That's a rock- solid certainty more investors appreciate in this low interest rate environment.

I firmly believe that if you buy shares of the companies in this report, you'll be well positioned to collect superior-yield dividends for years to come. What's more, the probability is high a couple years from now the share price of these companies will be much higher than your initial investment.

I'll start with a company that has a long history of paying and growing its dividend.

In addition, this company has the potential for growing its business and dividend for years to come...

UPS: Delivering Dividend Growth

United Parcel Service (NYSE: UPS) Recent price: $97.96 Market cap: $88 billion Dividend (Yield): $2.92 (3%)

Success is often a matter of focusing on the basics, and the basics are the focus of many dividendpaying stocks. Many simply master the mundane and then work to perfect the mundane as years go by.

Consider the package-delivery industry. No one has mastered the mundane task of shipping items from one place to another quite like the United Parcel Service (NYSE: UPS). Every business day, UPS delivers 18 million packages and documents for 1.5 million shipping customers to 7.9 million consignees in over 220 countries and territories. Size doesn't always correlate positively with performance, but in UPS's case it does. In the realm of publicly traded delivery stocks, UPS has not only been a top performer, it's been a consistent performer, as the chart below suggests.

Impressive to be sure, but not quite as impressive as UPS's commitment to its dividend policy, one that management has remained committed to since the company's first quarterly dividend in 2000. In 2001, UPS paid $0.76 in dividends per share. In 2011 ? just 10 years later ? it paid $2.08 per share. Today, it pays $2.92. When you consider the long term ? the past five years ? you see that UPS has increased its dividend by 45%. The company has also been aggressively buying back its own shares, reducing its share count by 9% over the past five years. Any company can impress investors with a high yield or annual dividend increases, but the yield and the annual increase become less impressive when they are generated through capital consumption or increased borrowing. A look at the payout ratio provides immediate insight into the long-run viability. Dividends that regularly consume over 75% of annual earnings, though sustainable, raise a red flag over the company's ability to make required capital expenditures. The red flag is further raised when the payout ratio is combined with a high debt load ? a debt-to-equity ratio of 1 or higher. UPS looks poised to continue growing its dividend as earnings continue to grow. Success rarely goes unnoticed and UPS's shares are trending higher. Therefore, they might appear less of a value to price-centric investors. The revelatory news is that price and value are infrequently synonymous. Continual share price increases are rational reactions to rising EPS.

UPS earned $1.18 per share in 2003. The company has successfully increased its EPS year after year and is expected to earn $5.74 per share in 2016.

Today, shares of UPS trade at roughly 19 times 2015 EPS estimates of $5.20 and 17 times 2016 EPS estimates of $5.75. UPS typically trades around 21 times current earnings. The discount points to uncertainty among investors as to whether UPS can hit its earnings estimates.

We think it will hit, if not exceed, the estimates. UPS is already executing on its plans to improve efficiency. The result has been improving margins ? a very positive sign for UPS.

The dividend also remains very attractive, offering a competitive yield of 3%. This puts UPS ahead of perennial dividend growers Lowe's (NYSE: LOW), which yields 1.7%; 3M (NYSE: MMM), 2.6%; and PepsiCo (NYSE: PEP), 2.9%. Meanwhile, UPS's main competitor ? FedEx (NYSE: FDX) ? trades at a valuation that is nearly twice as expensive and offers a dividend yield of just over 0.5%.

But as Mark Twain noted, "The past does not repeat itself," before adding, "but it does rhyme." And though it's unlikely UPS's annual dividend increases will match the increase of 46% over the previous five years, it is likely to rhyme with 8% average annual rate increases: the rate of increase that we have seen over the past few years.

It's worth noting that while UPS isn't a go-go growth investment, the company is benefiting from some very strong tailwinds.

U.S. domestic package delivery services accounted for 62% of UPS's $58.2 billion in revenues in 2014. E-commerce now accounts for 45% of its domestic package deliveries.

Shares of UPS stock are one of the best ways to profit from the ongoing shift toward online shopping versus traditional retail.

Who benefits when millions of Amazon (NASDAQ: AMZN) customers utilize the free two-day shipping included with their Amazon Prime membership, or when countless other online retailers post record order volume quarter after quarter?

It's the shippers, of course.

Worldwide Internet retail sales hit $1.32 trillion last year, according to data compiled by eMarketeer, an industry trade group. By 2018, worldwide Internet retail sales are expected to nearly double to $2.5 billion. China and the United States lead the charge, as the two countries combined account for 55% of global Internet retail sales.

Sales growth in China and the United States won't abate soon. By 2018, annual retail sales in China are expected to exceed $1 trillion, up from $426 billion in 2014. In the U.S., sales are expected to increase to $493 billion by 2018, up from $305 billion last year. China might lead the growth brigade, but in the U.S. sales are still expected to grow by more than 12% annually over the next four years.

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