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By Josh Peters, CFA and Jeremy Glaser | 11-05-2015 04:00 PM

3 Reliable Dividend-Paying Stocks

Morningstar's Josh Peters surveys the dividend-stock landscape today, discusses expectations for dividend growth, and shares a few of his favorite names.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm here today with Josh Peters--he is our director of equity-income strategy and also the editor of Morningstar DividendInvestor newsletter--to look at the state of dividend stocks today and see a few of his favorites.

Josh, thanks for joining me.

Josh Peters: Good to be here, Jeremy.

Glaser: So, let's look at the overall state of where dividend-paying stocks are right now. How have you seen the landscape shifting, say, over the past year or so?

Peters: Well, it's not been the greatest year. The biggest development, I think, for most equity-income investors has been the implosion of the energy sector. This isn't so much a feature of the little E&P guys, the wildcatters, or even some of the bigger names in that sector because they weren't really paying much for dividends to begin with, but we have seen some dividend cuts anyway.

It's been the big names like Exxon (XOM) and Chevron (CVX). People have been worried about if companies as financially secure as these two might be forced to cut their dividends. I don't think they will, but certainly the share prices have come down. We've seen a lot of volatility. The earnings are plummeting. And then the midstream story, especially, has really been hurtful for investors who perhaps weren't discriminating very carefully between the qualities of the businesses they were buying--or worse, investors thought that they were just getting access to a great industry through index products or mutual funds that were just buying all of the MLPs or most of the MLPs because some of them really are utilitylike in their consistency and their profitability. Most of them are not, and they have at least some commodity-price exposure, direct or indirect--and perhaps they have a lot. And many of them have a lot of debt leverage and not much for excess coverage. They can't afford to have much go wrong.

So, that's been the toughest thing, I think, specifically among higher-yielding stocks. But on a relative basis, we're still lagging growth. For the most part, company earnings aren't growing very fast and that little handful of companies that are experiencing a lot of earnings growth right now--some of the social-networking names that are still there or Nike (NKE) or Starbucks (SBUX) or somebody like that--they are not big dividend payers or even dividend payers at all. So, this has been one of those years where being different in pursuit of a different result has gotten you a different result--and it doesn't maybe look that good.

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