Chris Johnson’s Favorite Dividend Stocks for a Recovering Market

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I usually keep CNBC on while I’m working during the day and yesterday I overheard a commentator saying one of my favorite things to hear, “We like dividend paying stocks.”

The analyst being interviewed was Chris Johnson, chief investment strategist for Johnson Research Group and Director of research JK Investment group.  He has over 20 years of experience specializing in technical sentiment analysis and options strategies.

Johnson believes the market is in the 2nd of 4 stages.  The first stage is when the market bottoms out which has already passed.  The 2nd stage is where the recovery has begun but investors are skeptical.  The 3rd and 4th stages are where the market accelerates to point where value investors start to sell off stocks and take profits.  So naturally Johnson thinks now is a great time to be putting money to work.  He also cited the all of the investment capital that still remains on the sidelines.  He is expecting much of it to flow into equities later this year.

Towards the end of the interview Johnson highlighted a few of his best dividend picks.

Cincinnati Financial Corp (CINF)

Cincinnati Financial has a dividend yield of 4.6% and a 5 year dividend growth rate of 3.74%.  The company has increased its dividend for 51 consecutive years.  CINF is up 18% in 2012 and Mr. Johnson believes it has further to go.

Coca-Cola Company (KO)

Johnson sited Coke and the next company on the list, McDonalds because he favors consumer staple companies with growth and solid dividend yields. KO has a dividend yield of 2.7% and a payout ratio of 51%. It has increased its dividend for 49 consecutive years and has a 5 year dividend growth rate of 8.6% which gives it a DSO rating of 98/100.

McDonald’s (MCD)

McDonald’s had disappointing February sales numbers which drove the stock down a little in the last few days but Johnson still believes in the stock for its growth. MCD has a dividend yield of 2.7% and a 5 year dividend growth rate of 24.8%. It has a payout ratio of 50% and is one of the top rated stocks on our safe dividend list. Other global consumer brands that are similar to Coke and McDonald’s include Pepsi (PEP) and Kellogg (K).

Ross Stores (ROST)

Ross Stores has a very low dividend yield of just .8% which means it doesn’t make any list on our site but the company has demonstrated a commitment to increasing the dividend. It has raised the dividend for 17 consecutive years and has a 3 year dividend growth rate of 11% and a 5 year dividend growth rate of 16.6%. ROST has a very low payout ratio of 17%.

Costco Wholesale (COST)

Who doesn’t like shopping at Costco? I know I’m there all the time. Costco is another low yielding stock where the company at least appears to be committed to increasing the dividend. COST has a dividend yield of just 1.1%, with a 5 year dividend growth rate of 14.4% and a payout ratio of 29%. Costco has raised its dividend for 7 consecutive years.

If you are interested you can watch the full CNBC interview here.