The "Best of Breed" Dividend Stocks

A dividend yield of 2% or 3% may not sound like much, but dividends are the foundations upon which a majority of great retirement portfolios are built. Dividend payments provide three major benefits to shareholders. The first one is obvious: They put more money in your pocket. If you're up on your position, that means icing on the cake; if not, then a dividend is a hedge against your current unrealized losses. Secondly, dividend payments act as a beacon for Wall Street and investors, alerting them to the sustainability and profitability of a company's business model.

Income investors should generally search for "best of breed" dividend stocks. As the name implies, these are the top dividend plays you can buy and hold over the long term. The way I view it, the best-of-breed dividend stocks can be broken down into three categories: high yield, sustainability, and growth. Let's look at an example or two in each category so you'll have a good idea of what a best-of-breed dividend stock looks like. These may not have flashy 7.7% yields, but they'll deliver just about the safest dividend you can possibly find. Here I'm thinking about names such as Coca-Cola (NYSE: KO) and Procter & Gamble (NYSE: PG). The last best-of-breed category to consider is rapidly growing dividend stocks. Here I'm thinking about a biotech blue-chip stock like Amgen (NASDAQ: AMGN).

Source: Motley Fool

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