10 Top-Rated, Dividend-Paying Stocks

Vincent Mao

Investor's Business Daily

Companies sometimes return profits in the form of cash dividends to their shareholders. Most firms that pay dividends are usually more mature and belong to more stable industries such as utilities or REITs.

Young growth companies generally don’t pay dividends, as they tend to reinvest earnings to help the firm grow. It’s important to note that while it’s nice to sit with a stock and collect a fat dividend check every quarter, one should not pick a stock just because it pays the highest dividend. Company-specific news or even general market weakness can sometimes wipe out a year’s worth of dividends in a heartbeat.

Today’s list showcases 10 top-rated dividend-paying stocks. Most investors buy stocks for capital appreciation but many put up with sluggish price performance in favor of the dividend. The income generated from dividends should be a secondary consideration. The names on this week’s lists are industry group leaders. The fact that they pay dividends is just icing on the cake.

We screened for companies with Composite Ratings of 85 or higher, ensuring that the stocks on the list are among the top 15% of performers right now. IBD’s Composite Rating represents a powerful combination of fundamentals and leading price performance within the company’s industry group. It combines all five IBD SmartSelect Ratings into one comprehensive score. Stocks with high Composite Ratings generally have top fundamentals and are leading price performers in their industry groups.

To ensure that the companies meet all our criteria of strong sales and earning growth, and leading price performance, they must have Earnings Per Share (EPS*) and Relative Price Strength (RS**) Ratings of 70 or higher.

Only stocks with Accumulation/Distribution Ratings of “C” or higher were included in the list. This rating tracks the amount of institutional buying (accumulation) and selling (distribution) in a stock over recent months by looking at daily price and volume changes. Price rises on above-average trading help lift the Acc/Dis Rating, while declining price on above-average volume hurt the rating. The higher the letter rating, the more that is being purchased by the “big guns,” and since professional investors drive the price of stocks, this is a good high-sign for investors to consider following suit.

Lastly, the current price of the stocks had to be at least $10 with an average daily volume of 200,000 shares or higher. Stocks were also within 20% of a 52-week high.

Data as of Tuesday, September 26 market close.

* The Earnings Per Share Rating measures a company's earnings growth over the last five years. Then the percentage change in the last two quarters' earnings vs. the same quarters a year earlier is combined and averaged with the five-year figure. The result is then compared to all other companies in Investor's Business Daily's stock tables (not, as some people think, to other stocks on the same exchange or stocks in the same industry group) and rated on a scale of 1 to 99, with 99 being best.

** The Relative Price Strength Rating that appears for each stock is calculated by comparing its price change over the past 12 months to that of all other stocks in the tables. Results are rated on a scale from 1 to 99, with 99 being best. An RS Rating of 99 is the highest possible and means the stock has outperformed 99 percent of all stocks in the past 12 months. An RS Rating of 1 means nearly all other issues have done better. Market leaders usually rate 80 or higher.

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