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Quality stocks to buy for juicy, U.S.-dollar denominated dividends

The return of the Canadian peso means U.S. dollar dividends have rarely been this attractive to Canadian investors.

To uncover U.S. yield opportunities I started with all members of the S&P High Quality Rank Index to mitigate risk. The S&P quality ranking criteria favours companies with the best dividend growth backed with the most consistent, long-term profit growth. The resulting list consists of highly stable companies that can generate profits in any economic environment.

NamePE Ratio TTMFwd Dividend YieldEstimated Total Return
Health Care Reit Inc280.935.41%9.63%
Entergy Corp10.135.39%7.32%
Altria Group Inc15.395.12%12.27%
Southern Co/The15.634.88%7.44%
Lorillard Inc16.344.35%4.86%
Darden Restaurants Inc18.304.32%6.10%
Scana Corp13.724.31%9.17%
Kimco Realty Corp27.294.27%12.46%
Agl Resources Inc17.243.94%2.00%
Wisconsin Energy Corp18.033.74%10.23%
Waste Management Inc19.933.42%9.85%
Mcdonald'S Corp17.063.41%12.89%
Lockheed Martin Corp14.573.40%0.32%
General Electric Co15.713.39%16.55%
Chevron Corp10.233.32%13.28%
Mattel Inc16.923.29%11.74%
Republic Services Inc19.963.21%15.82%
Paychex Inc26.493.20%-1.92%
Sysco Corp18.003.19%7.00%
Clorox Company20.623.16%2.40%
Microsoft Corp12.733.12%9.88%
General Mills Inc18.133.12%8.77%
Kimberly-Clark Corp18.553.06%4.21%
Hasbro Inc22.533.06%7.12%
Procter & Gamble Co/The19.613.04%13.40%

A lot of people are understandably squeamish about the ethics of defense and tobacco stocks so it's no surprise these sectors dominate the top of a list sorted by dividend yield. Enough investors dismiss them out of hand that the market demands a higher dividend premium. Altria Group Inc., Lorillard Inc., and Lockheed Martin Corp. are all in the top 15.

Personal investor sensibilities aside, valuations are also a problem in some cases. The highest yielding stock in the index, Health Care REIT Inc., currently trades at over 280 times trailing earnings.

Atlanta-based electrical utility Southern Co. looks good on yield and valuation but analyst expectations are low. The average 12-month target price suggests a less than three per cent return.

There are three stocks among the highest-yielding 25 in the quality index where the average target price is more than 10 per cent above current levels – General Electric Co., waste management company Republic Services Inc. and Procter and Gamble Co.

I've already professed my love for General Electric as a growth opportunity so obviously I'm going to point that out here. Procter & Gamble's reliance on emerging markets revenue worries me a little bit, but the company has been able to generate consistent profit growth despite economic volatility in the developing world.

Republic Services' attractive valuations, 3.2 per cent dividend yield and 13 per cent expected return suggests there might be investor gold hidden among the company's landfills.

There are other opportunities in the table that require further research. McDonald's Corp. looks interesting but has struggled recently with changes in developed world dietary habits. Microsoft Corp. is attractive on paper but the ongoing decline in personal computing raises the risk the stock will be a stagnant, water-treading value trap.

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