Marshall Hargrave: 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.