It’s always interesting when I start looking for good stocks that will generate income through a regular dividend. I did the exercise today when looking for some good dividend stocks in the S&P500 index. There are many ways to do this but in my opinion, what you are looking for is:

#1-Stock that pays a high dividend yield (obviously)
#2-Stock that is growing its dividend or at least keeping it stable
#3-Stock that has decent earnings and should be able to keep up its dividend payments

There are of course many other factors that could be used but in my opinion, those are the most important ones.
To start off, here are the top 40 stocks in terms of dividend yield in the S&P 500:

Ticker	Name	Price	Dividend Yield	Payout Ratio	Ex-Dvd Date
WIN	Windstream Holdings Inc	7.98	12.55	356.15	3/27/2014
FTR	Frontier Communications Corp	4.65	8.6	298.64	3/5/2014
CTL	CenturyLink Inc	31.85	6.78	231.48	3/6/2014
FE	FirstEnergy Corp	32.98	6.67	119.43	2/5/2014
DO	Diamond Offshore Drilling Inc	56.92	6.15	67.54	2/13/2014
HCP	HCP Inc	36.32	5.78	110.32	2/6/2014
HCN	Health Care REIT Inc	53.57	5.71	607.36	2/6/2014
POM	Pepco Holdings Inc	19.13	5.65	87.02	3/7/2014
ETR	Entergy Corp	63.27	5.25	69.57	2/7/2014
ESV	Ensco PLC	57.18	5.25	28.61	3/13/2014
T	AT&T Inc	35.16	5.23	141.35	1/8/2014
TE	TECO Energy Inc	17.24	5.1	77.4	2/14/2014
VTR	Ventas Inc	57.28	5.06	238.42	3/7/2014
RAI	Reynolds American Inc	49.99	5.04	103.6	3/7/2014
EQR	Equity Residential	51.87	5.01	210.01	3/20/2014
TEG	Integrys Energy Group Inc	54.41	5	72.79	2/26/2014
MO	Altria Group Inc	38.39	5	82.72	3/14/2014
SO	Southern Co/The	41.11	4.94	72	2/6/2014
PPL	PPL Corp	30.09	4.89	54.54	3/7/2014
KMI	Kinder Morgan Inc/DE	36	4.56	116.28	1/29/2014
KIM	Kimco Realty Corp	19.75	4.56	356.18	3/31/2014
EXC	Exelon Corp	27.39	4.53	147.72	2/12/2014
RIG	Transocean Ltd	49.42	4.53	34.81	2/19/2014
DUK	Duke Energy Corp	69.01	4.52	100.42	2/19/2014
PCG	PG&E Corp	40.28	4.52	95.71	3/28/2014
PEG	Public Service Enterprise Group Inc	32.04	4.49	56.31	3/7/2014
ED	Consolidated Edison Inc	55.28	4.45	62.3	2/10/2014
AEE	Ameren Corp	36.16	4.42	#VALUE!	3/10/2014
LO	Lorillard Inc	50.68	4.34	73.63	2/26/2014
SCG	SCANA Corp	46.93	4.33	61.8	3/11/2014
PM	Philip Morris International Inc	87.13	4.32	62.64	3/25/2014
VZ	Verizon Communications Inc	49.14	4.32	657.01	1/8/2014
PBCT	People's United Financial Inc	15.12	4.3	88.83	1/30/2014
PNW	Pinnacle West Capital Corp	52.92	4.29	75.48	1/30/2014
AEP	American Electric Power Co Inc	46.74	4.28	72.76	2/10/2014
MAC	Macerich Co/The	58.89	4.21	111.53	2/18/2014
DRI	Darden Restaurants Inc	54.37	4.05	64.09	1/8/2014
XEL	Xcel Energy Inc	27.94	4.01	57.67	3/18/2014
GAS	AGL Resources Inc	47.23	3.98	74.91	2/19/2014
DTE	DTE Energy Co	66.39	3.95	62.01	3/20/2014
WMB	Williams Cos Inc/The	38.57	3.94	102.53	3/5/2014
COP	ConocoPhillips	70.65	3.91	44.31	2/13/2014
KRFT	Kraft Foods Group Inc	53.92	3.89	18.05	3/27/2014
GRMN	Garmin Ltd	46.22	3.89	64.78	3/13/2014
LEG	Leggett & Platt Inc	30.94	3.88	65.3	3/12/2014
LLY	Eli Lilly & Co	51	3.84	53.48	2/12/2014
CMS	CMS Energy Corp	26.77	3.81	66.74	2/12/2014
PCL	Plum Creek Timber Co Inc	46.51	3.78	133.99	2/19/2014
PSA	Public Storage	150.52	3.72	114.78	3/10/2014
AIV	Apartment Investment & Management Co	25.91	3.71	#VALUE!	2/19/2014
WEC	Wisconsin Energy Corp	41.34	3.7	50.58	2/12/2014
AVB	AvalonBay Communities Inc	118.23	3.62	147.85	3/28/2014
CNP	CenterPoint Energy Inc	23.18	3.58	82.97	2/14/2014
LMT	Lockheed Martin Corp	148.66	3.58	49.65	2/27/2014
IRM	Iron Mountain Inc	30.35	3.56	196.45	3/19/2014
MRK	Merck & Co Inc	50.05	3.52	83.87	3/13/2014
D	Dominion Resources Inc/VA	64.69	3.48	373.09	2/26/2014
INTC	Intel Corp	25.96	3.47	39.53	2/5/2014
NEM	Newmont Mining Corp	23.03	3.47	36.87	3/14/2014
NU	Northeast Utilities	42.39	3.47	71.4	2/28/2014
SE	Spectra Energy Corp	35.62	3.43	80.17	2/5/2014
PFE	Pfizer Inc	30.63	3.4	68.9	2/5/2014
CVC	Cablevision Systems Corp	17.93	3.35	483.89	3/12/2014
MCD	McDonald's Corp	97.03	3.34	53.07	2/26/2014
FCX	Freeport-McMoRan Copper & Gold Inc	37.74	3.31	39.01	1/13/2014
VNO	Vornado Realty Trust	88.79	3.29	265.31	2/5/2014
WM	Waste Management Inc	44.87	3.25	80.58	3/4/2014
PBI	Pitney Bowes Inc	23.3	3.22	68.95	2/12/2014
CINF	Cincinnati Financial Corp	52.37	3.21	62.47	3/17/2014
SYY	Sysco Corp	36.1	3.21	65.99	4/2/2014
CVX	Chevron Corp	124.91	3.2	26.14	2/19/2014
MCHP	Microchip Technology Inc	44.75	3.17	214.95	2/18/2014
SPG	Simon Property Group Inc	152.16	3.15	86.84	2/10/2014
GE	General Electric Co	28.03	3.14	50.22	2/20/2014
RSG	Republic Services Inc	33.2	3.13	58.39	3/28/2014
DPS	Dr Pepper Snapple Group Inc	48.72	3.12	45.54	3/13/2014
KMB	Kimberly-Clark Corp	104.46	3.1	66.46	3/5/2014
NEE	NextEra Energy Inc	85.62	3.08	52.33	2/26/2014
PAYX	Paychex Inc	45.53	3.07	83.78	1/31/2014
EIX	Edison International	46.3	3.07	28.48	3/28/2014
STX	Seagate Technology PLC	56.16	3.06	28.18	2/10/2014
CLX	Clorox Co/The	92.76	3.06	60.06	1/27/2014
GIS	General Mills Inc	49.91	3.05	46.79	1/8/2014
NI	NiSource Inc	32.88	3.04	66.61	2/5/2014
MAT	Mattel Inc	47.58	3.03	55.08	2/18/2014
PLD	Prologis Inc	36.95	3.03	#VALUE!	3/13/2014
CSCO	Cisco Systems Inc	22.45	3.03	33.16	1/2/2014
ABBV	AbbVie Inc	52.81	3.03	0	1/13/2014
SPLS	Staples Inc	15.89	3.02	#VALUE!	3/26/2014
K	Kellogg Co	61.07	3.01	64.72	2/27/2014
LYB	LyondellBasell Industries NV	80.28	2.99	84.09	3/6/2014
MSFT	Microsoft Corp	37.43	2.99	35.19	2/18/2014
CA	CA Inc	33.65	2.97	48.48	3/3/2014
CAG	ConAgra Foods Inc	33.7	2.97	52.55	1/29/2014
HP	Helmerich & Payne Inc	84.08	2.97	12.97	2/12/2014
PG	Procter & Gamble Co/The	81.41	2.96	56.75	1/22/2014
HAS	Hasbro Inc	55.01	2.91	55.62	1/31/2014
WU	Western Union Co/The	17.25	2.9	24.54	3/13/2014
JNJ	Johnson & Johnson	91.59	2.88	60.89	2/21/2014
DOW	Dow Chemical Co/The	44.4	2.88	170.73	3/27/2014

The next step required looking at growth in dividends. A company that has diminished its dividend payment in recent times is generally more inclined to do so again. So I was looking to take out companies that recently declined their dividends. That took out 7-8 names.

This brings us to the final step, determining if the company is liketlyy to be able to pay this dividend in the medium term. The way I do this is to compare the earnings of the company to the dividend yield. For example, if a company pays out a 5% dividend yield but only makes 2.5% (of its price) in earnings, then that is not sustainable.

But if a company  makes 2$ per share of earnings and pays out half of that amount in dividends, it is more logical to expect the dividend to remain intact. Doing that exercise, here are the 8 names that came out on top:

Ticker	Name	Price	EPS	PE Ratio	PE Next Year	Sales Growth	Analyst rating	Book Value	Beta	Revenue/Share	Sales 5Y Avg Growth	EPS 5Y Avg Growth
AAPL	Apple Inc	543.93	40.03	13.65	11.24	9.2	4.33	137.4	0.95	184.7	28.6	29.52
RAX	Rackspace Hosting Inc	36.73	0.78	56.04	51.44	27.72	3.6	7.07	1.12	9.68	23.1	26

As you can see, all of these names have a dividend yield over 5%, all but one have seen dividend increases in recent months and all are making more money thaan they are paying off. From there, it becomes more subjective and I might want to stay away from some names. For example, some might not like investing in AT&T because of its many problems and high level of competition. Other might want to avoid pharmaceuticals (Eli Lilly & Co)… But in my opinion, all of these are top 2010 dividend stock picks. Any thoughts?

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