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Dividends for Lifetime

McDonald’s (MCD) became a dividend play for a lifetime a few months ago highlighted by Jim Royal in his regular posts at Motley Fool.

He is back today to recommend another dividend play for a lifetime. The company is Microsoft (MSFT). Microsoft has been an exceptional dividend star over the past few years. It has fattened its dividend on average by 15% over the past five years — a clean double in that half-decade. That’s a solid gain, but it looks like Microsoft has plenty more increases in store. While its yield stands at 2.6%, well above that of the average S&P stock, it’s not the stuff of legend. But as an income investor, you need to balance high yield with high dividend growth. The growth rate is as vital as the dividend.

Another dividend paying companies which meet criteria to be selected and added to a dividend portfolio:


Dividend Yield

5-Year Dividend Growth Rate

Microsoft 2.6% 14.9%
Johnson & Johnson (NYSE: JNJ) 3.4% 10.4%
Frontier Communications (NYSE: FTR) 8.9% (5.6%)
Annaly Capital (NYSE: NLY) 15.4% 13.6%

Source: Capital IQ, a division of Standard & Poor’s.
Frontier dividend reflects recent change down to a $0.75 annual dividend rate.


Microsoft and Johnson & Johnson both offer lower yields, but with their excellent consumer franchises (despite J&J’s current problems) they have greater potential for high year-after-year increases.

Annaly has been pumping out mighty dividends over the last couple of years. As interest rates plummeted, Annaly’s net interest margin fattened, as did its payouts. Annaly could be a great play as long as low inflation remains, but the company is monitoring interest rates closely. If and when rates increase — more likely, skyrocket — the company could see a disruption in those payouts.

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