The Top Dividend Stocks

Your dividends depend on two things: a company's yield and its ability to grow those coveted payouts. Ideally, you'll find the best of both worlds: a stock with a high yield, and payouts that company can sustain and grow. Such stocks will pay out the most cash to shareholders for long periods of time. When you identify dividend stocks with both factors, the returns can be tremendous. Consider the "top five dividend stocks" over the last five years -- i.e., the five stocks that yielded the most to lucky shareholders who bought five years ago:

So which names will yield investors the most dividends over the next five years? No one can answer that question with certainty. However, we can calculate an implied five-year payout if we use estimated earnings growth as a proxy for dividend growth. To eliminate names with unsustainable payouts, I also filtered out stocks whose payouts exceeded net income. All of the top 10 companies were trusts or partnerships -- the highest ranked was American Capital Agency (AGNC) -- which are generally required to distribute the vast majority of their earnings to shareholders. To make up for the lack of retained capital, they frequently issue new shares. I'm generally bullish on mortgage REITs and have even bought shares of Annaly Capital (NLY) (which is ranked number five on the list) for the real-money Dada portfolio I co-manage. But I excluded REITs for the purposes of this study because their frequent capital raises would have made the comparison unfair.

Source: Motley Fool

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