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With 2014 nearly in the books, it is time to start thinking about 2015. Here’s why you should focus on dividends for next year, and some top choices to consider.
The importance of dividend investing can’t be overlooked.
Chasing the next Apple (NASDAQ: AAPL) or Google (NASDAQ: GOOGL) is often times more fun, but it can also be a sure way to lose money.
Investors hoping Amazon.com (NASDAQ: AMZN) would emerge as the next great tech success were greatly disappointed in 2014 when shares fell 22%.
Meanwhile, some of the best dividend payers were up nicely in 2014. Consider the utility industry, which offers some of the highest dividends around. The Utilities SPDR ETF (NYSEArca: XLU) has gained an impressive 29% year-to-date.
Here’s another way to understand how dividends can affect your portfolio: The S&P 500 climbed 72% over the last decade. But if you include all the dividends that the S&P 500 companies have paid, the index gained 112%.
With all that in mind, we’re looking at the top dividend stocks for next year. Here are the top five contenders for 2015:
Best Dividend Stocks For 2015: No. 1 — ConocoPhillips (NYSE: COP)
ConocoPhillips is an oil and gas explorer and producer. Its assets span the globe, including North America, Asia and Europe. ConocoPhillips has been sold off along with all things oil-related over the last six months; its shares dropped 19% over that period.
But its 4.2% dividend yield is a payout of just 50% of earnings. It has just one year of consecutive dividend growth under its belt, but trading at a price-to-earnings (P/E) ratio of just 12, ConocoPhillips is reasonably priced.
ConocoPhillips appears to be one of the best-positioned major oil and gas companies around. Its dividend yield is above average and it has managed to grow its dividend by an average annual rate of 7.5% over the last half decade.
Best Dividend Stocks For 2015: No. 2 — Ford Motor Co. (NYSE: F)
Ford needs no introduction; it’s one of the few major U.S. automakers and was enjoying a nice rally in auto sales until earlier this year. But various recalls have hurt the industry of late. Even still, Ford has some positives, which include a new all-aluminum frame F-150 truck lineup. Higher employment and lower gas prices should help drive renewed interest in the larger vehicles like the F-150.
Ford also has just a year of consecutive dividend growth to its name. But its 3.2% dividend is just a 45% payout of earnings. And Ford trades at a price-to-earnings ratio of just 10. Its P/E-to-growth rate (PEG) ratio is just 0.9; anything below 1.0 is considered a considered a growth stock that’s cheap. Ford is also much cheaper than its chief rival General Motors (NYSE: GM) on a price-to-earnings basis, where General Motors trades at a P/E of 20.
Best Dividend Stocks For 2015: No. 3 — General Electric Co. (NYSE: GE)
General Electric offers a 3.6% dividend yield and its payout ratio is right at 55%. It has increased its dividend payment for four straight years now. But shares of the conglomerate are down 5% year-to-date.
This comes after General Electric had a nice recovery following the financial crisis. Shares of General Electric were hit especially hard during the financial crisis due to its financing exposure. Since then it has spun off its consumer finance business as Synchrony Financial and it sold GE Money Bank.
But now General Electric’s oil exposure is pressuring its stock price. General Electric’s oil and gas segment accounts for just over 10% of revenues. But the key to remember is that General Electric has a diverse business model that includes five business segments. With this, earnings should continue to grow in 2015 despite the oil and gas overhang.
Best Dividend Stocks For 2015: No. 4 — Pfizer Inc. (NYSE: PFE)
Pfizer pays a 3.55% dividend yield and its payout ratio is just 50%. Pfizer is quietly turning into a dividend-paying machine, having upped its dividend payment for four straight years. Next year should be another solid year for dividend-seekers.
While the earnings growth outlook isn’t all that great, with earnings expected to decline by 1%, there is hope. Pfizer tried to purchase AstraZeneca (NYSE: AZN) for over $100 billion earlier this year, but failed. It’s still the largest pharma company in the U.S. and has a balance sheet that includes nearly enough cash to cover all its debt. Meaning, Pfizer is well-positioned to make another run at making a transformative acquisition.
Pfizer has a storied history of making large acquisitions. Recall its 2003 purchase of Pharmacia for $60 billion and 2000 buyout of Warner-Lambert for $112 billion. Its last major acquisition was in 2009, when it bought Wyeth for nearly $70 billion. The last acquisition was driven by cost synergies, but now it could be time to focus on top-line growth. In the meantime, investors will be getting an above average dividend yield.
Best Dividend Stocks For 2015: No. 5 — Mattel Inc. (NYSE: MAT)
Last but not least is Mattel. This toymaker has seen its stock price hammered of late. Shares of Mattel underperformed in 2014, with the stock down 33% year-to-date. This comes as sales of Fisher-Price and Barbie toys have been in decline. But Mattel is still an interesting stock.
Mattel’s Frozen toys have been doing quite well and the company is transitioning for a more creative future. It has a new segment called Toy Box, which has been created to find new growth opportunities. Management also hopes to shake up the company’s culture with new meetings policies: not having any meetings without a particular purpose, not holding more than three meetings to make a decision, and other new ideas.
Mattel has the highest dividend yield of our five stocks, coming in at 4.9%. It has upped its dividend for two straight years now. Mattel also offers a return on invested capital of 20%. And compared to its top competitor, Hasbro Inc. (NYSE: HAS), Mattel is much more attractive from a valuation standpoint. Hasbro trades at a P/E ratio that’s nearly 20, while Mattel’s is below 15.
As you wrap up 2014 and look to 2015, don’t overlook the need to have some best dividend stocks for 2015 in your portfolio. The selloff of oil-related stocks has created solid entry points for many stocks, while interim issues have created buying opportunities for others.
Dividends for Every Month of the Year
If you’re looking for just one dividend stock to round out your income stream, consider a little-known company that pays out dividends 12 months of the year. Click here to see the full details of this company in my Dividend Calendar…