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Three strong dividend-paying stocks to buy now

Professional investor Jeremy Whitley concentrates on finding good-quality stocks that pay out reasonable initial dividends, but which also have the potential to grow their payouts over the longer term. Here, he picks three attractive firms with good prospects for dividend growth.

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Jeremy Whitley, head of British and European Equities, Aberdeen Assest Management and manager of Dunedin Income Growth Investment Trust.

At Aberdeen Asset Management, we take a long-term view of investment. This means that we champion a bottom-up, stock-picking approach and concentrate on doing our own due diligence and research to find good-quality firms at attractive valuations.

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By good quality' we mean businesses with strong competitive positions, attractive prospects for growth, robust balance sheets and excellent management. The ability to generate a sustainable and growing dividend is also a critical consideration. The three firms I like play to our focus on businesses with the ability to pay out reasonable initial dividends as well as growing their pay outs at good rates over the longer term.

Several years ago, we broadened our investment horizon to include international companies. We were especially interested in firms that offered exposures that we couldn't find in the British market, which afforded superior return potential, or which would allow for a better-diversified portfolio.

The first firm that warrants investors' attention is Nestl (VX: NESN), the Swiss food group. It operates in a relatively consolidated global industry with a strong portfolio of brands, good levels of return and extensive exposure to growth in emerging-market consumption. It also possesses a very strong balance sheet, a 29% stake in valued brand L'Oreal and conservative, long-term-focused management.

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The valuation on 15 times 2012 earnings is not cheap, but given its quality and growth prospects it looks more than acceptable. Meanwhile, the yield is a reasonable 3.4% and we expect the dividend payout to grow meaningfully over the coming years.

My second pick is Rolls-Royce (LSE: RR), a leader in the manufacturing and servicing of engine turbines. These turbines are used in commercial and military aviation, as well as in applications ranging from maritime vessels to nuclear power stations. Rolls-Royce now has an order book of £59.2bn that equates to more than five years' worth of sales. We see the recent offer for Tognum, the German diesel engine manufacturer, as a potentially exciting expansion of the existing franchise. The company also has a strong management team and a net cash balance sheet.

Given these characteristics, the valuation is attractive on 12.6 times 2012 earnings and we believe that the business can also grow its cash returns to shareholders at a decent pace over the medium term.

My final firm is again something of a contrarian choice. Swiss company Roche (VX: ROG) is a leading pharmaceutical business. It has had its difficulties over the last year as its leading cancer franchise, Avastin, has come under pressure from regulators. Yet I believe that it remains one of the world's best healthcare businesses with very limited pressure from patent expiries, an unparalleled pipeline of new drugs and strong positions in biotechnology and diagnostics.

The company also has a very capable and experienced management team, strong cash-flow generation, a reasonable balance sheet and trades on a very modest rating of 10.2 times 2012 earnings, offering a dividend yield of 4.5% with good prospects for growth.

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