I’m going to suggest seven stocks to consider for 2010. You won’t find Google or Apple on the list. Instead, they are all dividend-paying stocks. Here’s why.

With the S&P 500 up 24%, and the NASDAQ up 44%, 2009 was party time for stocks. Unfortunately, the market far outpaced the real economy, which is still struggling.  Consequently, it’s time to be cautious. 

Unlike most stocks, where you only make money when you sell them for more than you paid, dividend stocks pay you for simply owning them. Since you’re receiving regular cash payments, you can score a worthwhile return even in a weak market. Even better, if the market does stay strong, you’ll probably enjoy share price appreciation plus the steady dividend income.

Of course, it’s not that simple. In a down market, dividend stocks drop too. So, you must be prepared to hold your stocks through market downturns, which could last a year or longer. Further, it’s important to pick solid companies with strong business prospects that will survive whatever the economy throws at them. Here are my ideas.

McDonald’s  
The world’s largest food service chain pays dividends equating to an expected 3.5% yield (next 12 month’s expected dividends divided by the current price). With restaurants in more than 100 countries, McDonald’s (MCD) will do okay even if the U.S. economy lags other parts of the world. The best dividend stocks to own are those that raise their payouts to shareholders while you hold them. McDonald’s looks good on that score. It paid its first quarterly dividend in February 2008, raised it by 33% in September 2008, and by another 10% in September 2009.

H. J. Heinz
Best known for its Ketchup, Heinz, (HNZ) with a 3.9% expected dividend yield, produces a variety of packaged foods including condiments, sauces, frozen foods, soups and pastas including brands such as Lea & Perrins, Ore-Ida and Weight Watchers, which it markets world-wide.

Pitney Bowes
The largest supplier of postage meters and postal mailing systems isn’t a fast grower. But Pitney Bowes (PBI) expected 6.3% dividend yield makes it worth holding anyway.

Consolidated Edison
Like most utilities, Edison, an electric and gas utility serving New York City and surrounding areas doesn’t have any competition. Consolidated Edison's (ED) expected dividend yield is 5.1%.

BP Plc
Formerly British Petroleum, BP (BP) is the world’s second largest publicly owned integrated oil and gas company (ExxonMobil is the largest), and the fourth largest U.S. oil refiner. It’s currently paying a 5.7% expected dividend yield. By comparison, ExxonMobil is only paying 2.4%.

World Wrestling Entertainment
World produces the wrestling shows none of us admit to watching on TV, live wrestling exhibitions and pay-per-view programs. World Wrestling Entertainment (WWE) also licenses characters for merchandising and video games, and sells videos and DVDs showcasing its stars. Whether you watch its shows on TV or not, World Wrestling’s 9.4% expected dividend yield should get your attention.

Sun Communities
Sun is a real estate investment trust (REIT), a special type of corporation that doesn’t pay income taxes as long as it pays out 90% of taxable earnings to shareholders. Sun Communities’s (SUI) expected dividend yield is a whopping 12.6%, which tells you that many investors consider Sun a riskier bet than lower yielding stocks. The dividends paid by the stocks that I’ve mentioned so far are all subject to a maximum 15% federal income tax. However, since they don’t pay federal income taxes, REIT dividends are taxable at ordinary federal tax rates.

The stocks that I’ve described seemed like good ideas to me when I wrote this column last week. But they may not suit your investing needs, or I may have overlooked factors that could hurt their prospects. Consider these stocks as candidates for further research, not a buy list.

published 1/3/10