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Sharpen Your Pencil – And Put These Three Stocks on Your "Shopping List"

Ask any of our gurus for advice on how to survive a stock-market sell-off – or even a whipsaw period like the one we’re navigating now – and you’ll get a surprising answer.

Keep a shopping list ready, they’ll tell you…

  • Dividend Stocks

  • Two Dividend Stocks to Buy for Increasing Payouts

    Following a banner year for dividend stocks in 2012, 2013 is delivering more of the same as an increasing number of companies are either initiating cash dividends or boosting existing payouts.

    From Feb. 1 to Feb. 8, at least 15 companies increased their cash dividends. That list included familiar names such as Dow component 3M Co. (NYSE: MMM), Allstate Corp. (NYSE: ALL) and Archer Daniels Midland Co. (NYSE: ADM), a new addition to Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) equity portfolio.

    It was more of the same when 14 companies raised their payouts in the week ending Feb. 15. That list includes Comcast Corp. (Nasdaq: CMCSA), PepsiCo Inc. (NYSE: PEP) and United Parcel Service Inc. (NYSE: UPS).

    With all these familiar blue chips delivering ever-increasing dividends, it is not surprising that some stocks of the same caliber go overlooked by investors. Here are a couple of those unheralded names investors on the hunt for dividend stocks should become more familiar with.

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  • 10 Dividend Stocks to Buy Now

    Near-zero interest rates have lots of savers clamoring for yield and plunging into dividend stocks.

    Compared with paltry yields on a bevy of bonds, dividend stocks - especially those with the potential of capital appreciation - have become progressively more attractive to income-seeking investors.

    Now's a good time to hunt for dividend stocks, as more companies increase payouts. Dividend payments grew sharply in Q4 2012, with 1,262 dividend increases reported, a 94.5% gain over the 649 increases in Q4 2011, according to S&P Dow Jones Indices.

    And rich dividend payments are expected to continue among companies flush with cash since
    they have curtailed expansion and investment amid growing global uncertainty.

    In fact, more than 5,000 analyst estimates compiled by Bloomberg News forecast that companies in the MSCI World Index will boost payments by 3.8% to a combined $39.43 a share this year, up from a low of $29.58 in 2009.

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  • Dividend Stocks to Buy Now: The Only New "Aristocrat" Worth a Bet Energy oil dollar small

    Weary investors scouring the landscape to find decent dividend stocks to buy should take a hard look at the latest list of Dividend Aristocrats.

    The S&P 500 Dividend Aristocrat Index measures the performance of companies in the S&P 500 Index with amarket value of at least $ 3 billion that have increased dividends for at least 25 consecutive years.

    In 2013, only 54 companies, approximately 11% of companies in the S&P 500, made the cut.

    Actually, it's no surprise this group of dividend stocks is tiny.

    Think about it.

    These companies have raised dividends for the last 25 years - a period of time that included the Great Recession, numerous oil price shocks, at least two major market meltdowns and wars in Iraq and Afghanistan.

    If they can steadily raise their dividends in the face of that kind of adversity, you can be pretty confident they're going to be around for awhile.

    They're the kind of companies that consistently deliver the goods, having outperformed the rest of the S&P 500 on a regular basis. The Aristocrats returned 4.59% annually over the last five years, while the group as a whole produced a negative 0.25% return for the period.

    These are businesses with strong balance sheets, healthy earnings and cash flow generation that can help you protect your portfolio - regardless of the market's direction.

    But not every Aristocrat is worthy of your hard earned dollars.

    Some drop by the wayside. Others are increasing their dividend by draining capital from their business.

    Here's what to look for when choosing the best dividend stocks to buy.

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  • Dividend-Paying Stocks to Buy: High Yield from an Unexpected Sector Woman laptop small

    Until recently you rarely if ever heard technology mentioned as a good sector to search for dividend-paying stocks to buy.

    Technology companies for decades have eschewed paying dividends to shareholders - to grow, you had to spend money. They plowed their annual profits back into the company, spending on research and development or acquiring smaller tech companies that improved their product offerings.

    Only the largest tech companies like International Business Machines Corp. (NYSE: IBM) ever paid meaningful dividends to their shareholders. If a tech stock paid a dividend, investors would take it as a sign that the company had matured and was no longer a growth stock with meaningful opportunities for appreciation.

    In fact, a dividend declaration by a technology company could often lead to a sizable stock decline.

    But those days have changed.

    How Tech Companies Evolved Into Dividend-Paying Stocks

    Tech stopped shunning dividends in the 1990s when tech stocks went through a boom phase.

    That's because institutional investors have mandates that prevent them from buying anything other than dividend-paying stocks, and they felt they were missing the action in the technology and Internet sector. They began to pressure tech stocks to pay a small dividend so they too could participate in the runaway rally.

    Since then we have seen many of the tech giants initiate regular dividend payments to their shareholders. They were never intended to be significant but things have changed dramatically in the last decade.

    Today many of these tech giants have seen their stock prices decline as their cash balances increased. They have raised the dividend to the point that tech stocks can now be a meaningful addition to income portfolios - especially for pre-retirement investors looking for income streams that will still be healthy 10 years from now.

    Here are a couple examples of some of the best sources of yield in tech.

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  • Here's Why The Fiscal Cliff Deal is Great News For Dividend Stocks

    I wish I had a nickel for every scary story I read about dividend stocks and the fiscal cliff over the last four months.


    But a funny thing happened on the way to this great apocalypse...


    Dividend stocks are not only alive and well, but stronger than ever.


    For most dividend investors, the only real difference is that these tax rates are permanent - there's no 10-year horizon, as there was with the previous 15% dividend tax rate. So investment planning just got a bit easier.


    The bottom line: There are now three good reasons why dividend stocks are irresistible...

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  • Dividend-Paying Stocks: Some of the Best Bets for 2013 Investors who shy away from dividend-paying stocks next year because of higher taxes will miss some of the best income sources of 2013.

    Plus, there's a good chance many investors will miss the biggest dividend tax hit.

    U.S. President Barack Obama, who earlier had suggested raising the dividend tax on those earning $250,000 or more, now says he wants to increase the tax on those earning $400,000 or more. Republicans have suggested raising the dividend tax on those earning $1 million or more.

    Many investors wouldn't be affected by either proposal: Among Americans who receive qualified dividends - those taxed as capital gains, not regular income - 48% make less than $250,000 a year.

    And there are some stocks that will be relatively immune to the fiscal cliff tax effects.

    For those who will keep their money in dividends, we've highlighted some of the best picks among dividend-paying stocks for 2013, as well as some you'll want to avoid.

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  • Don't Miss These Last Special Dividends in 2012 If you missed out on the rush of special dividends in 2012 or simply want to reap further rewards, there's still time to cash in.

    That's because even if a fiscal cliff deal is reached, tax rates on dividends will probably still increase. If you add in the investment surtax included in U.S. President Barack Obama's healthcare bill, the top tax rate on dividends could almost triple next year, from 15% to 43.4%.

    That is why companies are looking to help out investors in the way of special dividends in 2012.

    "Tax rates on dividends are never going to be better," said Steve Joyce, CEO of Choice Hotels International Inc. (NYSE: CHH), on its last earnings call. "I don't know how much worse they are going to get, but they are going to get worse."

    Special Dividends in 2012

    Special dividends offer investors the chance to cash in on a large dividend payout before it's taxed at a higher rate, plus investors will enjoy higher share prices as special dividend-paying stocks get a bump from the news.

    More than 420 special dividends have been announced just in November and December, which will soon exceed the 433 paid in all of 2011, according to S&P Capital IQ.

    And it's not just special dividends that are helping investors - regular dividends are being altered as well.

    Wal-Mart Stores Inc. (NYSE: WMT) announced its fourth-quarter dividend payout, originally scheduled for Jan. 2, will be paid on Dec. 27, and Costco Wholesale Corp. (Nasdaq: COST) and Oracle Corp. (Nasdaq: ORCL) also moved up their first 2013 dividend payments.

    Costco not only paid out its first dividend of 2013 in December, it also issued a $7 per share special dividend, totaling $3 billion, to be paid on Dec. 18.

    Wynn Resorts Ltd. (Nasdaq: WYNN) was another company in the past two months to announce a special dividend. Along with Wynn's $750 million dividend, some of the biggest payouts have been Brown-Forman Corp's (NYSE: BF.B) $853 million payout, a $1.1 billion payout by HCA Holdings Inc. (NYSE: HCA) and a $1.6 billion dividend by LyondellBasell Industries NV (NYSE: LYB).

    Dozens of other companies have also rewarded shareholders.

    "It's like a nice end-of-the-year gift," Jay Wong, a Los Angeles-based portfolio manager for Payden & Rydel, a money manager that manages $75 billion told The Wall Street Journal. "We anticipate that some others will probably issue special dividends before the end of the year, when they get a better sense of what's going to change in the tax structure and they assess their financial health."

    So where can investors find the next payout?

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  • Risky Dividend-Paying Stocks to Avoid Investors have had to endure a lot of turbulence and volatility this year, but it's been a very good year for those who invest in dividend-paying stocks.

    In the third quarter, dividend increases by U.S. companies amounted to $8.8 billion, according to S&P Dow Jones Indices.

    During the quarter, there were nearly 440 dividend increases, up more than 25% from the third quarter of 2011.

    Companies that aren't in the S&P 500 also are among those sharing the wealth. The percentage of non-S&P 500 common issues paying a dividend again increased, to 43.4% in the third quarter from 42.7% in the second quarter, 41.7% in the first quarter and 41.4% at the end of the fourth quarter of 2011.

    Even with all the positive news for dividend-paying stocks, there are some that are best avoided. Here are a few to keep out of your portfolio.

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  • 2013 Dividend Stock Forecast: The Road to True Wealth Starts Here If you listen to the press, Taxmageddon is going to be a "nightmare" for dividend stocks.

    There's only one problem with this scary story: It isn't true.

    Of course, I'll be the first one to tell you I'm not in favor of higher taxes on dividends.

    And it is true that if we fall off the "fiscal cliff" taxes on dividends will revert to the full income tax rate of each individual taxpayer.

    For the top taxpayers that means the top rate on dividends will rise from 15% to 43.4% if dividends become fully taxable again.

    However, that's not as bad as it sounds, which is why I believe dividend stocks will remain the place to be in 2013.

    Here's why.

    First institutional holders of dividend stocks are taxed at their own rate so they did not benefit from the 2003 cut in dividend taxes. That means they won't suffer from a new increase.

    And even among individual investors, many have their investments in IRAs or 401(k )s or other tax- deferred accounts. These holders will continue to receive dividends that won't be immediately taxed.

    As for those on more modest incomes, perhaps being retired and living mostly on their dividend income, they will pay taxes only at 15%, 25% or 28%.

    These are the thresholds which have been indexed for inflation since 2001, meaning the vast majority of tax payers will never get close to the 43.4% figure that makes for great scary headlines.

    But it's not just all about tax rates. There are other reasons why savvy investors should continue to invest in dividend stocks in 2013.

    One of them is Barack Obama...

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  • Three Dividend-Paying Stocks Likely to Increase Payout One reason investors are scared silly over fiscal cliff 2013 is the potential tax hike that will affect investing in dividend-paying stocks.

    If Congress doesn't act the rate on dividends will revert to the ordinary income rate, which tops out at 39.6%, after it was lowered to 15% during the George W. Bush administration.

    "It's a foregone conclusion the rates are going up -- it's just a matter of how high they go," Todd Lowenstein, a money manager with HighMark Capital Management Inc. told Bloomberg News.

    But history shows dumping dividend-paying stocks because of higher tax rates is a losing game.

    Even if tax rates go up, investors will fatten their wallets on companies that raise dividends because the money compounds over time, essentially paying interest on the interest.

    And right now, there are plenty of good reasons for corporations to reward investors with higher payouts.

    Why Dividend-Paying Stocks Will Increase Payout

    Companies are sitting on $3 trillion of cash and can create badly needed goodwill by showing they're attuned to investor concerns about higher taxes, according to HighMark's Lowenstein.

    Plus, if corporate tax rates climb, companies may want to increase their dividend payouts instead of paying more taxes on interest from that cash.

    And it's about time, based on the miserly way companies have been treating investors.
    Companies in the S&P 500 paid a paltry 27% of earnings to investors in dividends last year, according to research from Goldman Sachs Group Inc(NYSE: GS). Over the past 50 years, the payout ratio has rarely dropped below 40%.

    In fact, the best companies are committed to boosting their dividends in even the worst economic times. Many of them are so predictable that you can narrow it down to the very day they'll pay dividends and, in some cases, even the size of the increase.

    Three Dividend-Paying Stocks Likely to Pay More

    Here are three companies with long track records that will almost certainly raise their dividends in the near future:

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  • How to Find the Best Dividend-Paying Stocks for You If you find yourself always on the hunt for the best dividend-paying stocks for your portfolio, that's because one of the most discussed topics in the past two years has been the search for the right income investments.

    We all know the story and the problem.

    The U.S. Federal Reserve has lowered interest rates to basically zero and has made it clear it intends to keep them there for years. The hope is that this eventually spurs the economy and returns us to a state of economic growth.

    While we don't know how the Fed's efforts will succeed given two more years, we do know that it has created near impossible conditions for investors in search of income.

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  • These Dividend Stocks Will Be the Real Winners of Election 2012 With Mitt Romney's debate performance last week, Election 2012 has begun to swing Republican on the presidential side.

    According to a recent poll by Rasmussen, in the 11 swing states Romney now leads President Obama by a slim 49% to 47% margin. Collectively, these states hold 146 Electoral College votes, or enough to determine the outcome.

    Yet with two more debates still left on the slate, the truth is the fortunes of both candidates will likely swing back and forth right up to the wire.

    With 27 days until voters head to the polls it's shaping up to be a photo finish.

    For investors, that means next month should be volatile as traders attempt to guess the outcome.

    However, the long-term results are what's really important, not only for the "big picture" economy, but for particular companies and sectors that can be expected to benefit from either an Obama win or a Romney win.

    After all, there are considerable differences between the two candidates' policy prescriptions.

    And as long-term dividend stock investors it is going to be crucial that we take advantage of these differences, repositioning our portfolio when we know the election result so we can optimize its performance through the new administration.

    With the race still in doubt, here are 10 dividend stock suggestions from the Standard and Poor's 500 Index -- five for each candidate. The selections for each candidate can be expected to do better if he wins, and should therefore be bought when the election result is known --or perhaps before the election as a hedge against your least favorite candidate winning!

    If Obama Wins Election 2012, Buy These Dividend Stocks

    The following stocks should benefit should President Obama win re-election:

    • H&R Block (NYSE: HRB). If President Obama wins election 2012, it seems almost certain that taxes will rise, at least for those with incomes above $250,000 and probably for many people poorer than that. In addition, there's likely to be a mass reshuffling of allowances and tax rates, changing the best tax strategies for everyone with any complexity at all in their tax returns.

      This has to be good news for tax preparers, the largest of which is HRB, both directly through their network of offices and indirectly through their TaxCut tax software. HRB has a dividend yield of 4.5%, and a historic dividend payout ratio of 60%.
    • Cliffs Natural Resources (NYSE: CLF). If Obama wins, Ben Bernanke is likely to stay in office as Fed chairman, and be replaced by a like-minded successor when his term of office ends in January 2014. That means interest rates should stay low -- good news for commodity stocks like CLF, an iron ore and coal producer. CLF has been generous on the dividend front, and now pays $2.50 per share, giving it a yield of 6.3%. Its historic payout ratio is about 25%, but that will increase as 2012 has been a tough year.
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  • Investing in Emerging Markets: 2013 is Year of the Dividend In August 2012, a record $34 billion in dividends was paid to investors, topping the previous record of $32.1 billion set in November 2011.

    September was not too shabby either in terms of dividends and payout increases. At this point it is fair to say 2012 will prove to be a very favorable year for income investors.

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  • The Best Place to Look For Income Today It's a good rule of thumb: when stocks yield more than bonds, stocks are the better buy because of the potential for growth.

    Believe it or not, before the financial crisis in 2008 that was hardly the case. Going all the way back to 1958, bond yields always outpaced those of stocks.

    But thanks to Ben Bernanke and friends, bond yields have been driven into the basement. What's more, the central banks of the world are doing everything in the power to keep them there.

    That's why investors are increasingly turning to exchange-traded funds that specialize in dividend stocks as vehicles for income.

    This makes good sense for a couple of reasons. First, bond markets aren't very transparent, which makes bond prices difficult to come by, so ordinary investors get ripped off if they buy corporate bonds directly.

    Second, in today's markets you will do better in a high-dividend stock ETF--especially one with an international portfolio, than you will in a bond ETF.

    Let me show you why that is...

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  • The Best Dividend-Paying Stocks to Buy Now Some investors fail to realize that successful investing is a matter of continuous performance, not instantaneous performance.

    That's why we like dividend-paying stocks.

    Over time, dividends and reinvestment can account for 85%-90% of total stock market returns.

    In some cases, the dividends are so steady and increase so much that you actually make more in dividends than you paid to buy the stocks that produce them.

    And as inflation concerns grow following QE3, investors need to make sure they are protected.

    Money Morning's Global Investing Strategist Martin Hutchinson says dividend-paying stocks offer that protection.

    "Do you know what the ultimate investment protection is? It's not gold, and it's certainly not Treasuries. It's dividend stocks," said Hutchinson.

    But before you go hunting for the best dividend-paying stocks, let's set some ground rules for evaluating which ones are most valuable.

    First, a good cutoff is a stock with a yield close to 3%, preferably higher, and a payout ratio less than 60%. Any higher payout ratio would indicate that the company cannot sustain the dividends, manage debt and grow at the same time.

    Second, look for companies that have price/earnings ratios less than 25 and a solid history of paying and increasing dividends.

    This establishes a solid benchmark for dividend stocks and their fundamentals. Sometimes a dividend stock can look great because it has a 10% yield, but you have to look at the other numbers to decide if it's a worthy investment.

    To avoid those high-yield traps, check out this list of some of the best dividend-paying stocks to buy right now.

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