Also in Today's Issue...

Following last year's dismal market performance, investors are understandably cautious. Both Wall Street and Main Street are looking for something they can be sure of in the year ahead. And for income investors, that means finding a safe and rewarding dividend yield.

It used to be that dividend payers themselves were the thing investors could be sure of. Tucked in the shadow of more aggressive and volatile Wall Street darlings, these venerable firms conducted their business, generated solid cash flows, posted their earnings and paid their dividends. These companies all made money the old-fashioned way. They earned it. High-flying? No. Dependable? Yes.

But last year was a tough year for dividend payers. Sixty-one of the companies in the S&P 500 Index cut their dividends in 2008, equating to $40.6 billion in lost dividend income.  But it's time to apply last year's hard lessons and take a clear-eyed look at risk, performance strength, dividend coverage and, lastly, potential return.

The Dow Jones Industrial Average represents some of the strongest names in America. The 30 members of the Dow are worth a collective $2.83 trillion and are considered to be the market leaders in their industries. So these corporate titans are a good place to start searching for the safest dividend.

Safety Criteria No. 1: Yield

Here are the results:

Kraft earned $662 million and paid out $426 million for a payout ratio of 64.7%.
 
Verizon earned $1.6 billion against its $1.3 billion dividend obligation for a payout ratio of 79.4%.

Safety Criteria No. 4: Track Record and Upside Potential

We're still left with two companies. Both Kraft and Verizon have above-average yields, have a stable outlook and have demonstrated an ability to cover their dividends under tough economic conditions.

At this point, I'll turn to history as a guidepost, looking at each company's average P/E, dividend growth rate and average annual total returns for the past five years.

Amazingly, both companies are trading at almost identical discounts to their five-year average P/E. If each stock returned to its average P/E, Verizon would appreciate +37.1% while Kraft would appreciate +37.2%. Apparently that's not going to break a tie.

Verizon does yield 1.9% more than Kraft, although Kraft has grown its dividend at a faster rate. Both companies also outperformed the S&P 500's annualized total returns for the past five years. But Verizon outgained Kraft by +1.7% a year -- by almost the same amount as its dividend premium over Kraft.  

As a telecommunications provider, Verizon is an essential service with high subscriber loyalty. Kraft Foods includes strong consumer food brands like Kraft cheeses, Oscar Mayer meats and Nabisco cookies. Both companies boast of above-average yields and both dividends passed my stringent safety criteria.  

If pressed, I'd have to tip the scale to Verizon for the safest dividend in the Dow. Its higher 6.3% yield has made a positive impact on its total returns. And that difference is something we income investors can take to the bank.


Good Investing! 

-- Carla Pasternak
Editor
High-Yield Investing

P.S. I know of one stock whose yield is even higher than Verizon's -- and just as secure. I've been recommending this security to my readers for years, and it has rewarded us handsomely. Right now it's yielding a hefty 9.5%. But the best part about this stock is that it pays monthly... AND it's never cut its dividend. Go here to get the full story on this stock now.

Additional Investing Ideas

P.S. -- If you're not already a subscriber to one of StreetAuthority.com's premium investing newsletters, which include a wealth of additional information and specific investing guidance that you won't find anywhere else, then please visit the following page to learn more: http://www.StreetAuthority.com/subscribe.asp