I’ve been discussing the overall market a lot lately (if you didn’t catch last week’s market video, you can watch it here) so today I think we’ll ignore it–and focus on stocks that ignore it too (more or less). Below are three recommendations from the latest Dick Davis Dividend Digest. Each one of these three stocks is a conservative dividend payer with relatively low correlation to larger market moves. Sounds pretty good right about now, doesn’t it?

The first is Macquarie Infrastructure Company (MIC), which yields about 3%. MIC is one of the few stocks that has managed to stay above its 50-day moving average lately, and the strength has not gone unnoticed: it was recommended by two analysts in the latest Dividend Digest. The first was George Southerland, editor of Special Investment Situations, who wrote on October 25:

“Macquarie Infrastructure Co. owns and operates a handful of infrastructure assets consisting of relatively basic services where cash flows are predictable. The flagship asset is a 50% equity interest in NJ-based International-Matex Tank Terminals, or IMTT, that operates a bulk liquid storage terminal business that stores petroleum products and an array of chemicals. Capacity is over 43 million barrels, and the business isn’t particularly sensitive to the economy since storage contracts last from three to five years. IMTT enjoys a distinct competitive advantage as one of its main facilities (Bayonne) is located near New York harbor and can load and unload ships quickly due to the depth of the water in front of its docks. … A kicker here involves the dividend, currently at $0.20 per quarter for a 3.2% yield. Management is working with its partner in the IMTT investment to distribute excess capital that the business is generating. We anticipate an increased distribution probably beginning in Q1 2012, and could see the dividend nearly double within a year. Note also that a rising payout should prompt capital appreciation from the shares. MIC is a buy up to 26 and becomes particularly interesting on dips below 24.”

The second Macquarie recommendation came from Jennifer Dowty, a managing director and portfolio manager at Manulife Asset Management who writes for Investor’s Digest of Canada. On November 18, she wrote:

“On November 2, the company reported strong operational third-quarter results, with revenue climbing nearly 18% year-over-year. Five analysts rate Macquarie a ‘buy.’ Their average one-year price target is US$29.50 a share. A key catalyst for the company is speculation that management could substantially boost the dividend in early 2012. … The company has been unable to resolve a dispute regarding distributions with the co-owner of International-Matex Tank Terminals. A hearing on the issue is set for January 9 and the company anticipates the process will be completed by the end of March. But if the outcome favors Macquarie and the economy is good, the company is likely to raise the dividend by roughly $0.70 a share.”

Our next stock is very small–its market cap is only $78 million–but it is actually hitting new 52-week highs right now. White River Capital (RVR) pays a 4.5% dividend. On October 14, Eric Dany, editor of Stock Prospector, wrote:

“There’s more upside ahead for this sub-prime auto finance company because they are buying back shares and growing their financing portfolio. … The share repurchase program could remove 6.9% of the outstanding shares, which would boost book value to about $25.00. The sub-prime auto finance company operates Coastal Credit in 24 states. They acquire the subprime notes through franchised and independent auto dealers and then service the notes. … My earnings estimates are $2.25 in 2011 and $2.50 in 2012. With a P/E ratio of 10x my 12-18 month target price is $25.00 a share. … Strong Buy.”

RVR looks a little over-extended here though, so wait for a pullback before buying in.

Finally, a perennial Dividend Digest favorite, with a 7.6% yield, recommended by Roger S. Conrad and Elliott H. Gue in MLP Profits on October 28:

“Linn Energy (LINE) has hedged all of its oil output through 2013 and all of its natural-gas production through 2015. The firm has boosted its average daily hydrocarbon output by more than 30% over the past 12 months, leading to a 30% surge in third-quarter cash flow. These solid operating results enabled Linn Energy to cover its quarterly distribution by a margin of 1.1 to 1. Management expects to cover its full-year distribution 1.18 times. Management also continued to opportunistically lock in favorable pricing with new hedges. The firm also repurchased 530,000 units at an average price of just $32.76, some 15% below the current price. CEO Mark Ellis projects that Linn Energy’s capital investments will continue to deliver quarter-over-quarter production growth of at least 6%. … Few energy producers are lower-risk plays than Linn Energy LLC; the stock rates a buy up to 40.”

LINE can be volatile at times, but the 7%-plus yield is such a draw that most sell-offs are quickly corrected. The current weakness (such as it is) will probably prove to be another such buying opportunity. LINE looks like a good buy right here for the large dividend.

Until next time, hang in there.

P.S. Learn more about Macquarie Infrastructure Company (MIC), White River Capital (RVR) and Linn Energy (LINE), as well as other top high-yielding dividend-payers featured in Dick Davis Dividend Digest.

Two other respondents complained about the low interest rates on fixed income investments.

Howard B. wrote that he would like help “finding the highest possible yield with investment grade or high credit quality. I am looking for a combination of appreciation and current cash flow yields.”

Charles M. is “trying to find safe, dependable, interest-bearing securities.”

A subscriber from Tennessee wrote, “I am 83. Finding a livable return on investments that are safe. I am presently in state municipals with some fear.”

And a subscriber from Massachusetts simply wrote, “INCOME.”

As more and more Americans approach retirement age, and lose other regular income streams, I expect to see this concern more frequently. Fortunately, unlike market volatility and economic uncertainty, making your portfolio generate regular income is entirely within your control. And since it’s the focus of our Dividend Digest, I can help you out.

There are a lot of fixed-income investments for investors to choose from: bonds and preferred stocks offer investors varying levels of security on corporate debt. There are always a few alternative income investments in every issue of Dividend Digest, but dividend-paying stocks are our main focus. And for all but the most conservative investors (those who really can’t afford to risk any capital, ever), dividend-paying stocks are a great way to generate income right now. As two of our subscribers pointed out, interest rates on fixed-income instruments are unbearably low.

John Buckingham, editor of The Prudent Speculator, brilliantly explained the advantages of dividend payers in the latest Dividend Digest:

“Clearly, equity investors must steel their nerves for heightened levels of volatility, especially as the European sovereign debt crisis remains front and center, growth in stronger economies like China and Germany has slowed and recent economic statistics in the U.S. have been far from robust, but relative to Treasuries, dividend yields are as attractive as they’ve been in 50 years. Aside from several months at the height of 2008-2009 Global Financial Crisis, the last time the yield on the S&P 500 was above the yield on the 10-year Treasury was 1958. And the big plunge in both interest rates and equity prices on October 3 moved the forward yield on the S&P closer to the 2.8% yield on the 30-year Treasury! What’s more, corporations have actually been boosting their payouts as more than half (258) of the S&P 500 members have either raised or initiated a dividend this year.”

He continued, “It is nice to see the renewed interest in income, as we can’t forget that dividends and their reinvestment have long been a substantial contributor to the total return on equities. Data from Morningstar going back to 1927 show that through the end of last year, the income component of total return amounted to 41% for Large-Cap Stocks, 35% for Mid-Cap Stocks and 31% for Low-Cap Stocks. More importantly, our own analytical work going back 20 years and numbers we’ve crunched from Eugene T. Fama and Kenneth R. French dating to 1927 find that dividend payers have actually outperformed non-dividend payers over the long term and they have done so with lower volatility! Not quite the Holy Grail, but higher returns with lower risk is obviously a winning combination.”

Hard to argue with that. So, assuming that our subscribers aren’t the only investors looking to generate more income from their portfolios, I’ve chosen five great dividend-paying stocks from the latest issue of the Dividend Digest to tell you about today.

The most conservative, for investors whose priority is capital preservation, is an electric utility, recommended by Dennis Slothower in the October issue of Stealth Stocks. But even though this utility is a defensive play, you’re not giving up any yield in exchange for safety–the current quarterly dividend of 25 cents yields a generous 5% per year.

“If you must be long a stock, as we transition from the early contraction phase to a middle contraction phase, I recommend utilities, which tend to be a defensive sector in a contraction. I recommend Duke Energy Corporation (DUK), which is an electric utility company, paying a solid 5% dividend. The stock hit a new 52-week high in a solid uptrend. Look for a pullback to the $19 range or perhaps lower to buy this company. Projection: According to my numbers, DUK should be selling in the $40 range. It is currently trading around $20; so DUK has large upside potential. Place a sell stop at 25% below your entry price. As the stock rises, continue to raise your stop so that you are trailing the Friday close by 25%.”

For investors who are willing to take on slightly more risk in exchange for the chance to see their principal grow, there’s this aerospace giant, recommended by Steve Christ in The Wealth Advisory on October 7. He thoroughly covered the growth catalysts providing a nice tailwind for Boeing Co. (BA – yield 2.6%):

“Not only is Boeing a great company, but it’s a global leader in a space that America still dominates. When it comes to designing and manufacturing aircraft, Boeing is a company with few peers–especially when it comes to commercial aircraft. [Boeing's new] Dreamliner is the first plane ever to have its entire fuselage made of carbon composites, rather than aluminum sheets that are held together with some 50,000 fasteners. Along with its new engines, these design features help to give the plane a dramatic boost in speed and efficiency, allowing it to use considerably less fuel. Clean and green, the Dreamliner burns 20% less fuel than a comparable aircraft–a huge plus in a world where airlines are often rocked by fuel price increases. What’s more, Boeing projects the plane’s revolutionary design can remain in service for 50 years, adding roughly 20 more years to the life cycle of each plane. … To date, the Dreamliner is actually Boeing’s best-selling airplane of all time, with 820 planes already on backorder representing $145 billion in future sales. … From this point forward, Boeing has ambitious plans to ramp up production into 2013 to crank out 10 Dreamliners a month, up from the current two. At current prices, that means Boeing hopes to add nearly $24 billion to its top line over the next two years if it can meet those goals. That gives today’s investors the chance to buy Boeing at a discount, since the ongoing delays knocked 15% off Boeing’s 2011 earnings, helping to keep its share price down. The upside is that the sales growth added to Boeing’s earnings by Dreamliner sales won’t begin to hit until next year. CEO Jim McNerney recently said the plane will actually be profitable from the first day, since the input costs per plane are not generating a loss on each delivery. According to analyst consensus, this translates to an increase in earnings per share by 23.6% and 18.7% (respectively) over the next two years. That adds up to $5.24 a share in 2012 and $6.21 a share in 2013. At 13.5 times earnings, that gives Boeing a reasonable price target of $84.24 a share. And at today’s prices, that leaves 35% upside from here. That doesn’t include the dividend, which at 2.7% is well above the market average and has grown by an average of 6.5% annually over the past 20 years.”

Harry Domash, editor of Dividend Detective, profiled another stock with growth potential, but a higher dividend yield:

“The Canadian economy, thanks to abundant natural resources, remains much stronger than the U.S. economy. … Consequently, we’re adding another Canadian bank, Canadian Imperial Bank of Commerce (CM – yield 4.7%), to the Dividend Detective Large Bank portfolio. Unlike existing portfolio member Bank of Nova Scotia (BNS), which has operations in 50 countries, CIBC focuses mostly on the Canadian market. CIBC has two major operating units. Retail markets, which accounts for around 75% of profits, offers the usual banking services. Its wholesale banking unit, CIBC World Markets, offers merchant and investment banking and capital market services to corporate, institutional, and government clients. In 2011, CIBC acquired a 41% stake in U.S.-based asset management firm American Century Investments. CIBC just raised its quarterly dividend.”

J. Royden Ward, editor of Cabot Benjamin Graham Value Letter, profiled An even higher-yielding stock from the same sector. This isn’t a growth stock, but Roy does think it’s undervalued, so it’s a great choice for investors who want high yield, appreciation potential and relatively low risk:

“First Niagara Financial Group, Inc. (FNFG – yield 6.5%) shares sell at 9.6 times its latest 12-month EPS (earnings per share), which is a bargain despite the upcoming 22% dilution (see below). The dividend yield of [almost] 7% is huge. FNFG’s stock price will likely reach our Minimum Sell Price of 15.20 within one to two years. … Based in Buffalo, New York, FNFG provides financial services through its wholly-owned savings bank subsidiary, First Niagara Bank. The company currently operates branches in 346 communities providing financial services to individuals and small and mid-size businesses. … FNFG’s loan portfolio is weighted heavily toward low- risk commercial loans, which make up 67% of total loans. Several acquisitions within the past few years have provided rapid growth. Outlook: First Niagara’s strong balance sheet has enabled management to acquire smaller banks at advantageous prices, including NewAlliance Bankshares with 88 branches in New York and New England. The company’s next step will be to acquire 195 bank branches in Upstate New York and Connecticut from HSBC Bank USA for $1 billion. First Niagara will sell $800 million in common stock, which will dilute investor ownership by 22%. Shareholders have over-reacted, though, by sending FNFG shares down 30% to their lowest price in 10 years. It is not expected that the 7% dividend will be cut. Maximum Buy Price: 9.63.”

Finally, for those who just want yield, yield, yield, look no further than our neighbor to the North, Canada. Capstone Infrastructure Corp. (CSE) trades on the Toronto exchange, and is riskier, but it pays a six-cent dividend every month, for an annual yield over 10%. Roger Conrad, editor of Canadian Edge, wrote:

“Capstone Infrastructure Corp. currently yields more than 10%, based largely on the perception that its distribution is at risk. Easing investors’ fears is an obvious catalyst for a fast return trip to a price of at least USD8 for the stock, a range it held up until mid-summer. Such a roundtrip became a lot more likely this week, as management announced it would use the remaining dormant cash on its books to buy a 70% stake in Bristol Water from Suez Environment. … As a result of the deal, management has raised its cash flow projection for 2011 to CAD75 million from a prior forecast of CAD60 million. The 2012 estimate is now CAD140 million, up from CAD80 million. Capstone management has long maintained its high payout ratio of recent quarters is only temporary, caused in part by the large amount of cash still on its books from the sale of its 42% stake in Leisureworld. Management has taken its time investing the money, which has resulted in a large portion of assets earning only meager returns. … With the Leisureworld proceeds now deployed, the most important item on the agenda is still the re-contracting of the Cardinal natural gas power plant. … Should Cardinal get a new contract that’s perceived as favorable to Capstone, we may not have to wait long for a return move to USD8, and eventually well beyond.”

P.S. I feel so strongly about the benefit of owning dividend-paying stocks that I published a brand new report just last week highlighting 10 of the best income-generating stocks that should be in your portfolio. In 10 Blue-Chip Dividend Payers to Own in 2012, you’ll gain access to the top dividend-payers that can bring you steady, secure income. And you can get it FREE when you subscribe to Dick Davis Dividend Digest today.

And then, one by one, they begin to bail.

It’s now week six of the current downtrend, and a good number of our contributors have said “sayonara” to the market for now.

Almost all are least recommending that subscribers hold off on new buying, with the exception of value-focused letters and some speculative deep-discount buyers.

It’s not a very fun environment in which to be trying to pick cream-of-the-crop stock recommendations for a digest.

But it is instructive.

You see, even when they’re not recommending new buying, a lot of our contributors still have to profile new stocks in each issue. In general, they try to pick stocks that will begin outperforming once the market turns around, when they will want to put money to work. So how do you find these stocks?

The most tried-and-true approach is to look for “coiled spring” stocks. These are stocks with pent-up buying power that will be unleashed once the weight of the lousy market is removed–like a coiled spring. You can recognize these stocks by what they don’t do–and that’s go down. In a lousy market, especially one that’s been dragging on for six weeks, investors start selling everything–even good stocks. And most fall in price as a result. The only stocks that don’t fall are those with enough buying power to counter the selling power. So once the selling power is lifted–boing!

You can recognize these coiled spring stocks by their charts. They’re staying fairly level, or at the very least declining a lot less than the market. We’ve featured a lot in the Digest recently, so I can share a few with you today.

Today’s first coiled spring is courtesy of the Dick Davis Dividend Digest, where the stocks are generally a little more conservative but all pay nice dividends. This company, which only yields 1.9%, is about as growth-oriented as the Dividend Digest picks get. On a total return basis, it’s a winner, gaining 144% in the past two years. The stock is Eastman Chemical (EMN). Here’s the gist of the recommendation from Ford Equity Research Report Editor Richard Segarra:

“Eastman Chemical is a chemical company which manufactures and sells a portfolio of chemicals, plastics, and fibers. … While Eastman’s earnings have increased from $6.24 to an estimated $8.76 over the past five quarters, they have shown acceleration in quarterly growth rates when adjusted for the volatility of earnings. This indicates an improvement in future earnings growth may occur. … Eastman’s operating earnings yield of 8.4% ranks above 85% of the other companies in the Ford universe of stocks, indicating that it is undervalued. … Eastman’s stock price is up 69.3% in the last 12 months, up 14.4% in the past quarter and up 2.1% in the past month. This historical performance should lead to above-average price performance in the next one to three months.”

Since the beginning of May, EMN is down only 8%, making it one of the strongest stocks in the market. I’d recommend this stock for all investors if it continues to hold up.

Today’s second coiled spring is in a very different industry, retail. Ross Stores (ROST) was recommended in the latest Dick Davis Investment Digest by Louis Navellier, editor of the Blue Chip Growth Letter, who wrote:

“Ross Stores is the second-largest off-price apparel retailer (behind TJX Companies) and operates about 1,000 Ross Dress for Less and DD’s Discounts stores throughout 27 states and Guam. The stores sell mostly closeout merchandise, including men’s, women’s and children’s clothing, at prices well below those of department and specialty stores. … Although high gasoline prices hurt other retailers, they actually benefit deep discount retailers like Ross Stores by typically increasing its customer base. As an example, the company posted an impressive 10% April same-store sales gain, and its overall sales rose 14% to $651 million compared with $570 million in the same month a year ago. Ross just announced first- quarter earnings. The value retailer’s sales increased 7% to $2.075 billion. Earnings reached $1.48 per share, a 27% increase from the $1.16 per share the company earned during the same period last year. ROST beat estimates on both counts. In its latest earnings report, Ross also announced that it reached a record operating margin of 13.7%. Looking forward, the company expects same-store sales to increase 2% to 3% in the second quarter, and earnings to come in between $1.15 and $1.20 per share. ROST is a Conservative stock and should be bought below $86.”

Though the stock finally developed some weakness in the past week, it’s still above its moving averages thanks to a strong bounce off of earnings in the early part of the downturn. If it breaks down further, that’s a bad sign, but it’s worth watching in the meantime.

Finally, we have CARBO Ceramics (CRR), which made its second appearance in the Investment Digest two weeks ago. Much like Eastman Chemical, CRR has been rising remarkably consistently ever since the beginning of 2009, so it’s attracted its fair share of attention. But the stock’s resilience since the beginning of May–it’s only 12% off its all-time high–proves there are still plenty of buyers of CRR. CARBO makes ceramic proppants, very small spheres (like sand) that are injected into the spaces in fractured rock to increase oil and gas yields. The company is the undisputed leader in the market, and the market is growing rapidly as “unconventional” oil and gas plays become economically competitive. This is a sector that’s unlikely to be derailed by anything, as CRR’s chart suggests.

By the way, CRR is only one of many stocks benefiting from increasing demand for unconventional energy sources–it’s been a great place to find gains all year, and as CRR’s resilience demonstrates, it’s not slowing down. Several of our Digest contributors will actually be discussing these energy sector game changers in an exclusive webinar later this month. The speakers include frequent Dividend Digest contributor Roger Conrad, editor of Utility Forecaster and The Canadian Edge, the Wall Street Sector Selector’s John Nyaradi and Cabot Global Energy Investor Editor Brendan Coffey. If you want to know how to find other future leaders of the energy sector, like CARBO, the webinar will be a great opportunity to hear from these experts and ask them questions yourself.

You can learn more about the webinar–and secure your spot with our early bird special rate, which expires on June 18 at midnight–by clicking here.

The subscribers to my Dick Davis Dividend Digest were among those surveyed, and they’re obviously interested in income-generating investments. However, they represented far less than 69% of the sample, leading me to conclude this is a topic of broad interest among you.

One of the likely reasons for high interest in dividend payers is the increasing number of Americans—and my readers—approaching or at retirement age. Owning dividend-paying stocks is a great way to keep receiving regular income after you retire. Consequently, I suspect that these investments will only increase in popularity as the baby boomer generation retires. Those of you already invested in dividend payers will benefit as their increasing popularity drives up prices. And investors looking to add an income component to their portfolios will probably see even more options in coming years, as demand drives younger blue chip-type stocks like Cisco (CSCO) to introduce dividends for the first time. I also expect some companies that currently pay only small dividends to increase their payouts to attract more retiree investors.

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Of course, there are already plenty of great dividend payers out there. The most reliable are the S&P 500 Dividend Aristocrats: Companies that have increased their dividends for at least 25 consecutive years. Typically, a so-called Dividend Aristocrat is, by its very nature, a large and relatively stable blue-chip company with a healthy balance sheet. A Dividend Aristocrat is considered the “gold standard” for dividend-generating stocks and, as such, income investors seek them out. A lot of companies, particularly financials, fell off this hallowed list in 2008 and 2009, so the ones left are truly the crème de la crème of dividend payers. Many of them are featured in the Dividend Digest regularly.

Today, I’d like to share a few of the most recent recommendations from the list. They’re all great options for investors looking to create or add to an income-generating portfolio:

Insurer and Dividend Aristocrat The Chubb Corporation (CB) was originally recommended in the Dividend Digest over a year ago, on February 10, 2010, at 48.40 by John Eade of the Argus Weekly Staff Report. At that time, he wrote: “We expect a well-managed combined loss and expense ratio and an aggressive stock buyback program to drive results, as the top line takes a couple more quarters to revive. The company’s balance sheet is in solid shape, with industry-low debt levels. CB shares are now trading at near parity to book value, which is historically an attractive valuation.”

In a follow-up published in the Dividend Digest almost exactly a year later, on February 9, 2011, Eade wrote: “We are maintaining our BUY rating and $65 target price on Focus List selection The Chubb Corp. Chubb is doing a good job managing what it can control—the noncatastrophe combined loss and expense ratio— and its aggressive stock buyback program is also driving results.”

In February 2011, CB was trading around 59. It has since crept up a bit to 62, and on March 16 it paid a 39-cent dividend, its highest ever. Think insurance companies are boring? Think again. Well-managed insurers can be insanely profitable—and they produce most of their profits by investing customers’ premiums themselves, often in income-generating securities. That’s why owning top-quality insurance stocks like CB is a great way to generate reliable and growing income.

Exxon Mobil (XOM) is the S&P 500 Dividend Aristocrat Index’s seventh-largest constituent by market cap. XOM’s performance has been nothing less than stellar over the last six months. It was last recommended in the Dividend Digest on January 12, 2011, when it was selected as a Top Pick for 2011 by Stephen Todd, Editor of the Todd Market Forecast. He wrote:

“The stock’s current yield is 2.3%, and the appreciation potential should be excellent. This is because 2011 is likely to see an economic growth spurt and the Obama Administration seems anti-oil. This will prevent drilling at a time when demand increases. The rise in oil prices should be a boon to ExxonMobil.”

Four months later, oil prices have indeed risen, and XOM is 14% higher, trading around 85. The yield has fallen closer to 2% thanks to the price increase, but Exxon usually increases its dividend for the second quarter, which will be paid in May.

Abbott Laboratories (ABT) is definitely an income investor favorite; I see it recommended by one of our contributors at least once every month. Ingrid Hendershot, CFA, editor of Hendershot Investments, also chose it for the January Top Picks issue. She wrote:

“Abbott Laboratories (ABT 47.86 NYSE – yield 3.70%) is a global, broad-based health care company. Abbott’s primary businesses include pharmaceuticals, with key therapeutic areas including immunology, cardiology and infectious diseases; nutritional products for infants, children and adults with special dietary needs; and medical products, including vascular, laboratory and molecular diagnostics, vision care and diabetes. The company markets its products in more than 130 countries. Abbott is expanding its overseas presence, most recently with the acquisition of Piramal Healthcare Solutions, one of the biggest generic pharmaceutical suppliers in India.

“Abbott generates strong cash flow from its operations. Free cash flow has more than doubled from $3 billion in 2004 to over $6 billion in 2009. Free cash flow through the first nine months of 2010 increased 24% to $5.7 billion. The company returned $2.9 billion of the cash to shareholders in the form of $2 billion in dividends and $866 million in share repurchases. The dividend currently yields an attractive 3.7%. Abbott has paid a dividend every year since 1924 and increased the dividend for 38 consecutive years. With market leadership positions across multiple growth areas, a strong financial position, record cash flows and highly profitable operations, Abbott is a HI-quality company. With an expected 13% free cash flow yield, Abbott is attractively valued and well-positioned to continue to increase its dividend thanks to its bountiful cash flows. Long-term investors should consider injecting Abbott into their portfolio for healthy long-term total returns.”

Abbot just increased its dividend, to be paid May 16, to 48 cents, giving it a yield of 3.80% at today’s price of 50. As Top Picks, the Abbott and Exxon recommendations will both be updated in this summer’s special issue of Dividend Digest Top Picks Update.

Johnson & Johnson (JNJ) is another popular recommendation among Dividend Digest contributors. Mark Deschaine, editor of Deschaine & Company’s Viewpoint, was the last expert to recommend it in the Digest on October 10, 2010. He wrote:

“Johnson & Johnson may seem out of fashion in today’s frivolous, hyperactive, and alpha-starved investment environment; but this $170 billion dollar health care and personal product empire has been a wealth creating, income producing, compounding machine for well over a century. … Johnson & Johnson makes and markets thousands of diverse health care and personal care products, including such household medicine cabinet staples as Tylenol and Listerine, as well as some of the world’s most sophisticated medical devices and diagnostic equipment. JNJ has been paying a dividend since 1944 and has increased it annually for over 47 years. … For every share you might have bought in 1979 at $0.85, you would now be receiving $2.16 in annual dividends, or more than 2.5 times your initial investment—each and every year— and growing to boot! Going forward, you can be sure we do not anticipate this kind of supercharged income growth. However, our analysis indicates that Johnson & Johnson should be able to continue to generate positive cash flow from its stable of products and continue to pay and increase its dividends for years to come. As long as that’s the case, and the price of the stock remains reasonable by our valuation measures; we’ll continue utilizing the dividend and dividend growth attributes of JNJ to provide growing income to our clients.”

At today’s price near 59, JNJ is currently yielding 3.63%.

Most recently, Patrick McKeough, editor of the Wall Street Stock Forecaster, recommended Dividend Aristocrat The McGraw-Hill Companies (MHP) in the March 9, 2011, Dividend Digest. He wrote:

“McGraw-Hill gets 70% of its earnings and 45% of its revenue from its Standard & Poor’s division, which provides financial information, including credit ratings on bonds. The company also publishes textbooks and magazines, and owns nine television stations. In 2010, McGraw-Hill’s revenue rose 3.6%, to $6.2 billion from $6.0 billion. Revenue from Standard & Poor’s rose 8.3%, as businesses took advantage of low interest rates to issue more bonds. The textbook division’s revenue rose 1.9%, thanks to higher college enrollment and rising demand for electronic versions of its books. That offset slower demand for new elementary and high school textbooks. Revenue at McGraw-Hill’s media operations fell 4.9%, mainly because the company sold BusinessWeek magazine in 2009. Without this sale, this division’s revenue would have risen 6.2%.

“Earnings rose 13.2% in 2010, to $840.0 million, or $2.69 a share. The company earned $742.2 million, or $2.37 a share, in 2009. These figures exclude gains on the sale of BusinessWeek and other assets, as well costs to restructure the textbook and media businesses. McGraw-Hill continues to buy related companies. It recently paid roughly $300 million for TheMarkets.com, a privately held firm that sells investment research and data to hedge funds and other institutional investors. The company can easily afford to keep making purchases like this. Its long-term debt of $1.2 billion is just 10% of its market cap, and it holds cash of $1.5 billion, or $4.97 a share. Continued falling demand for elementary and high school textbooks could hold back McGraw-Hill’s earnings growth in 2011. Still, the stock trades at a reasonable 13.3 times the company’s likely 2011 earnings of $2.85 a share. McGraw-Hill also raised its quarterly dividend for the 38th consecutive year, to $0.25 a share, up 6.4% from $0.235. The new annual rate of $1.00 yields 2.6%. McGraw-Hill is a buy.”

To learn more about Dividend Aristocrats like CB, XOM, ABT, JNJ and MHP, check out Dick Davis Dividend Digest, where top income-generating stocks are recommended each and every month.

I use a matching program, created by my loving wife who happens to also be a computer programmer, which compares the stocks from the two services and finds stocks that are the same or a “match” in both services. My program turned up eight stocks with strong buy ratings from both Value Line and Standard & Poor’s. My past experience using this methodology has shown that these eight stocks will perform very well, on average, during the next 6 to 12 months. Included in the list of eight were stalwarts Hewlett-Packard (HPQ) and Wal-Mart (WMT). Also included were Avnet (AVT), Metro PCS Communications (PCS) and TRW Automotive (TRW), which are a tad more risky than HPQ and WMT, but look more attractive to me and are described below.

Avnet (AVT) is a distributor of electronic components, enterprise computer and storage products and embedded subsystems. From suppliers, the company receives electronic components, computer products and software, and resells to manufacturers, sometimes with assembly or other value added by Avnet. The company sells to more than 300 electronic component manufacturers. To retailers, Avnet markets and sells mid- to high-end servers, data storage, software and the services required to implement these products and solutions.

Corporations are fueling demand for storage products and networking gear, as those companies upgrade their data centers to improve efficiency. Avnet’s recent purchase of Bell Microsystems will add substantial sales in 2011. I expect 16% earnings per share (EPS) growth during the next five years. At 9.3 times current EPS, AVT shares are a bargain. The company does not pay a dividend.

Metro PCS Communications (PCS) is a wireless telecommunications provider. The company offers wireless broadband mobile services under the MetroPCS brand in selected metropolitan areas in the U.S. over its own licensed networks or the networks of affiliates.

PCS provides a variety of wireless communications services to its subscribers without long-term contracts, but with paid-in-advance, flat-rate, unlimited usage plans that include all applicable taxes and regulatory fees in the monthly price. PCS’s unique plans are sold at a low monthly fee and are attracting many new customers at the expense of larger providers. The company has eight million subscribers.

Metro PCS’s aggressive marketing of flat-rate wireless plans with unlimited usage is winning new customers at a rapid rate. I forecast 24% EPS growth for the next five years or longer. At 17.2 times earnings, PCS shares are undervalued.

TRW Automotive (TRW) is a world-wide supplier of automotive systems and components to automotive original equipment manufacturers (OEMs). The company’s operations primarily encompass the design, manufacture and sale of safety related products. Products include braking and steering systems, airbags and seat belts, and crash sensors.

TRW is aggressively expanding operations in Brazil and China to meet customer desire. Demand in the U.S. is also picking up, and auto sales in Europe, where TRW has a large presence, should start to see improvement in the second half of 2011. I believe earnings per share will increase 19% per year during the next five years. At 10.4 times EPS, TRW shares are a bargain.

To review the criteria I used to select these stocks, click here.