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In this screen, we turned our attention to comparatively low-risk stocks that have good records for dividend growth. In addition, our selection criteria focused on those issues that our analysts project will continue providing investors with dividends that are likely to increase at above-average rates.

We began our search with stocks whose dividends have advanced at a compounded annual rate of at least 6% over the last five years. Similarly, we next narrowed the list to equities with projected annual dividend growth rates of at least 6% over the next three to five years. We also set a minimum estimated yield for the year ahead of 2.8%.

We then restricted our search to stocks with above-average ranks for both Safety (1 or 2) and Financial Strength (B++ or better), two of Value Line’s many proprietary ranks. Companies whose shares earn high marks for these metrics will generally fare better in volatile markets than the typical stock under our review. Lastly, to reduce the risk of underperformance, we limited the selection to issues ranked 3 (Average), or better, for Timeliness (i.e., relative price performance over the next six to 12 months), another proprietary Value Line measure.

The set of stocks that made the final cut are not only judged to be safer than most, but also possess proven and prospective dividend growth rates that are likely to exceed the average rate of inflation under the time periods chosen for this review. Consequently, the list will likely appeal to conservative investors in search of current income. We note that this group is comprised of a fairly wide range of companies, not just regulated utilities and financial institutions as per past dividend-focused screens. Not surprisingly, our list is dominated by large-cap industry leaders. Of the 25 names that made the list (see below) we have chosen to highlight Sysco Corporation (SYY) and Baxter International (BAX).

Sysco Corporation

Sysco is the leading U.S. marketer and distributor of food, equipment, supplies, and related products to the food service industry. It has more than 400,000 customers in the U.S. and Canada. The company serves restaurants, educational institutions, hospitals, nursing homes, hotels, and motels. Sysco has 185 distribution facilities and self-service centers in the U.S., Canada, and Ireland.

Sysco has announced intentions to acquire US Foods. Terms of the transaction call for Sysco to purchase US Foods for about $3 billion in stock and $500 million in cash. This deal would augment Sysco’s position as the largest food distributor on the domestic front, with combined annual sales in the neighborhood of $65 billion. What’s more, the company has announced that it plans to assume nearly $4.7 billion of US Food’s debt obligations, and refinance the current structure of the loans. Furthermore, shareholders of US Foods, owned by affiliates of private equity firms Clayton, Dubilier & Rice and KKR & Co., would own approximately 13% of Sysco’s stock and maintain seats on the board of directors. The deal, which is likely to close during the third period of this year, has been approved by the boards of both companies.

Sysco has lifted its quarterly payout by a penny a share, and now distributes $1.16 on an annualized basis. What’s more, the company’s healthy balance sheet, sizable cash flow from operations, and willingness to return excess capital to its stockholders, means further dividend boosts are probable down the road. Hence, these shares might well be a solid fit for many portfolios. The stock holds decent appreciation prospects out to 2016-2018, and a solid dividend yield helps to sweeten the pot. What’s more, this equity maintains our Highest rank for Safety (1), which may pique the interest of conservative investors.  A Stock Price Stability rating of 100 should also interest risk-averse accounts.

Baxter International

Baxter International operates as a diversified healthcare company. Through its subsidiaries, it develops, manufactures, and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. As of the end of 2012, the company manufactured products in 27 countries and sold them in more than 100 countries. Baxter’s primary business segments include BioScience and Medical Products.

Baxter’s purchase of Gambro AB is starting to bear fruit. The company purchased Gambro in early September of last year, paying nearly $3.7 billion in cash. During the third quarter of last year, the maker of dialysis products contributed approximately $100 million to Baxter’s revenues. From our perspective, Gambro should continue to complement the company’s existing portfolio of businesses. The acquisition might well provide a number of long-term growth avenues, and result in synergies through cost savings.

We view Baxter’s pipeline as a positive for long-term growth. Over the past several periods, the company has benefited from solid demand for its hemophilia treatments, specialty plasma treatments, and vaccines. Moreover, the company has maintained a high level of R&D expenditures and is set to release another batch of promising products over the next year or so. Recent notable launches include HyQvia in Germany and RIXUBIS on the domestic front.

We continue to view Baxter stock as a good selection for investors seeking dividend income with low risk. Currently, these shares carry our top rank for Safety (1) and the company’s finances are top notch (Financial Strength rating A++). What’s more, the dividend yield is about one percentage point above the Value Line average, given the recent valuation. We look for solid dividend increases 3- to 5-years hence, given the company’s attractive growth prospects.

  

Company

Ticker

Dividend Yield

Intel Corp.

INTC

3.64

Nat'l Bank of Canada

NA.TO

4.36

Teva Pharmac. ADR

TEVA

2.9

Baxter Int'l Inc.

BAX

2.83

Brit. Amer Tobac. ADR

BTI

4.5

CA, Inc.

CA

3.09

Chevron Corp.

CVX

3.44

Coca-Cola

KO

3.2

Enbridge Inc.

ENB.TO

3

Lockheed Martin

LMT

3.66

Magellan Midstream

MMP

4.29

Mattel, Inc.

MAT

3.35

McDonald's Corp.

MCD

3.45

Microsoft Corp.

MSFT

3.04

NextEra Energy

NEE

3.1

Northeast Utilities

NU

3.54

Occidental Petroleum

OXY

3.17

Owens & Minor

OMI

2.9

South Jersey Inds.

SJI

3.61

Sysco Corp.

SYY

3.3

Target Corp.

TGT

3.18

TELUS Corporation

T.TO

3.82

Toronto-Dominion

TD.TO

3.54

Village Super Market

VLGEA

3.4

Wisconsin Energy

WEC

3.69

At the time of this article's writing, the author did not have positions in any of the companies mentioned.