RBC's High-Yield Dividend Growth Stocks to Buy

RBC has put together various portfolios for its clients, taking into account varying levels of risk tolerance. In a new research report, the firm adds and deletes some names from its Guided Portfolio: Dividend Growth offering. RBC screens for companies on the strength of their underlying business models, breadth of their management teams, defined policies to return cash flow to investors and a history of strong free cash flow generation, with a commitment to dividend growth.

We screened their names by sector, looking for the stocks with the highest yield for income-oriented investors. Not all the stocks are rated as Outperform at RBC. Some are added to the portfolio more for their steady income and are rated Sector Perform.

AT&T Inc. (NYSE: T) is the RBC telecommunications services stock, and it posted weaker-than-expected earnings. The New York–based quant hedge fund Renaissance Technologies recently opened up a sizable position in the telecom giant. AT&T provides telecommunications services in the United States and globally. Its wireless subsidiaries provide both wireless voice and data communications services across the United States and, through roaming agreements, in a substantial number of foreign countries. Investors are paid an outstanding 5.1% dividend. The Thomson/First Call consensus price target for the stock is $35.75. AT&T closed Wednesday at $34.92 a share.

McDonald’s Corp. (NYSE: MCD) tops the list in the consumer discretionary sector. While profit at the fast-food giant has waned in recent years, the venerable giant continues to tweak the menus with new, healthier offerings and specials to lure in new customers and keep old ones coming back. One thing that is encouraging for shareholders is the outstanding growth in Europe and emerging markets. Investors are paid a solid 3.2% dividend. The consensus price target is $104.07. McDonald’s closed Wednesday at $99.13.

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Philip Morris International Inc. (NYSE: PM) makes the list in the consumer staples sector. While tobacco use has declined in the West, it has surged in emerging markets, and the company is exploiting that growth. With the growth of oral tobacco products and the new e-cigarettes, Philip Morris continues to find ways to grow earnings. While the company is susceptible to currency swings, it should prove to be a good long-term hold. Investors are paid an outstanding 4.5% dividend. The consensus price target is $86.76. Shares closed trading Wednesday at $83.35.

Kinder Morgan Inc. (NYSE: KMI) is a top energy pick, and it is also one of the most recommended master limited partnerships (MLPs) on Wall Street. The company reported strong first-quarter 2014 earnings from continuing operations of $0.73 per limited partner unit, beating consensus estimates. The quarterly results were 10.6% higher year-over-year. Revenues increased 37.2% to $3,652.0 million on year-over-year basis. The company pays unitholders a nice 5% distribution, which may contain return of principal. The consensus price target is $37.86, and the stock closed Wednesday at $33.61.

Wells Fargo & Co. (NYSE: WFC) is a new addition to the RBC list and a financial name that may benefit if yields start moving higher. The yield curve typically steepens in an improving economy, which many on Wall Street currently anticipate. Wells Fargo is slowly, but surely becoming one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. It also remains a top Warren Buffett holding. Investors are paid a 2.5% dividend. The consensus target is $451.71, and Wells Fargo closed Wednesday at $49.59.

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Johnson & Johnson (NYSE: JNJ) is a top-yielding health care name on the RBC list, and it trades at less than 16 times forward earnings. With everything from medical devices to over-the-counter health items, the stock is a solid add for conservative portfolios. Investors are paid a 2.7% dividend. The consensus price target is $104.55. Johnson & Johnson closed Wednesday at $100.22.

General Electric Co. (NYSE: GE) has lagged the rally over the past year, and it may provide investors a solid entry point. It is a top-yielding industrial in the RBC portfolio. The company continues to expand its investment into energy, committing $10 billion to its “ecomagination” budget through 2020. GE plans to use the initiative to develop alternative technologies to replace water in the hydraulic fracturing process. In 2012, fracking used more than 50 billion gallons of water, according to a report by Bloomberg. With water shortages in places like California, energy companies are looking for ways to cut back on water use. The iconic industrial trades at a low 15 times forward earnings. Investors are paid a very solid 3.3% dividend. The consensus price objective is at $29, and GE closed Wednesday at $26.42.

Qualcomm Inc. (NASDAQ: QCOM) is another new addition to the RBC portfolio. There has been speculation that Lenovo will mainly rely on Qualcomm chips for handsets shipped outside China due to intellectual property reasons. After a nine-month integration period for the Motorola acquisition, Lenovo will initially target the United States and Latin American markets. The chip giant trades at a low 14.3 times forward earnings. Investors are paid a 2.1% dividend. The consensus price target for the tech chip giant is $83.43. The company reported disappointing numbers after the closing bell, and the stock ended Wednesday at $80.71.

These solid stocks are the kind of names investors for the most part can buy and hold for years. Their track records of solid growth and increases in dividend payouts are more than likely to continue for the foreseeable future. The majority of these stocks also offer qualified dividends, which are taxed at a lower rate to shareholders, depending on their specific tax bracket. The combination makes good sense for investors looking to add growth and income to their portfolios.

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