In gambling, as in investing, a statistical advantage is everything -- although the casino usually has it. But not always: Counting cards, if done correctly, gives a blackjack gambler a 1% advantage. Sounds small, but it's enough to give a precious few a full-time profession.
Now imagine if you could get a 3% advantage in investing.
Then you could be a full-time investor ...
Few folks seriously consider becoming full-time investors, but in a way, that's what you do in retirement. And even if clocking out isn't in your periscope at the moment (it should be), investing is at least a side job for you, a way to earn a little more money. Or else you wouldn't be reading this article.
Now, that 3% advantage sounds too good to be true, doesn't it? It isn't. Because that's the advantage that Wharton professor Jeremy Siegel demonstrated that high-yielding, dividend-paying stocks have over the rest of the market. This study -- one of many he's cranked out over the years -- showed specifically that the S&P's 100 highest-yielding stocks outperformed the overall index by three percentage points annually from 1957 to 2003. In the world of finance, that's huge!
So what are three dividend payers that could help you get started beating the market? Here you go:
No. 1
First up is Citizens Communications, a telephone company that stacks its own odds by operating in rural markets, which are less competitive. Its whopping 7.2% dividend yield is almost head and shoulders above industry peers such as AT&T (NYSE: T ) and Verizon (NYSE: VZ ) . In fact, Citizens earned high enough marks to be recommended in our Motley Fool Income Investor service.
No. 2
Norsk Hydro (NYSE: NHY ) is a Norwegian oil powerhouse with a dividend that's been growing like a weed. It can rightly be called the ExxonMobil (NYSE: XOM ) of Scandinavia, but my conservative model sees far more potential upside in this foreign stock than in the domestic giant. The Norsk management team is seasoned, and while oil may be volatile going forward, this is another Income Investor recommendation you can take to the bank.
No. 3
Bristol-Myers Squibb has been churning out medicines since 1887. This stock has been the talk of takeover speculation from the likes of Merck (NYSE: MRK ) and Pfizer. Bristol ousted its CEO a couple of months ago, making a takeover seem all the more timely. A counterpoint is that Wall Street analysts aren't wild about the stock these days and expect growth in the industry to come from biotechs such as Gilead Sciences (Nasdaq: GILD ) and Genzyme (Nasdaq: GENZ ) . While this situation has some uncertainty surrounding it, the company's 4.6% yield is attractive with or without a buyout premium to boot.
The Foolish conclusion
I'll be clear in stating that I'm not necessarily recommending these stocks as "buys." I'm not calling them unworthy, either. Still, waters that statistically turn up strong performers are a great starting point.
Can you get a little more specific than picking three stocks, advantaged though they may be? You bet. The Fool's own dividend newsletter fishes in high-dividend waters. It's paying off -- our Income Investor newsletter is beating the S&P 500 by nearly seven percentage points from inception. Click here for a guest pass to check it out.
This article was originally published on Oct. 18, 2006. It has been updated.
James Early
owns no stocks mentioned in this article. Citizens Communications is an Income Investor recommendation.Pfizer is an Inside Value pick. The Motley Fool has adisclosure policy.
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