The New York Yankees of the '50s and the Chicago Bulls and Dallas Cowboys of the '90s have one crucial element in common: consistent excellence in their organizations and performance. That's a rare accomplishment, but if you think it could never occur in your portfolio, think again. Carefully chosen dividend-paying stocks could be your key to superstar returns.
Build the next investing dynasty
These long-haul outperformers can help you build your fortune, as studies from investing gurus such as Jeremy Siegel have shown time and time again. Finding them is our Motley Fool Income Investor service's mission.
Constellation Energy (NYSE: CEG ) , for example, has returned more than 151% since June 2004, and is currently rewarding investors with a 1.9% yield. Or consider Tupperware (NYSE: TUP ) , which has returned 102% since October 2005, atop a current 2.1% yield. While these stocks happen to be Income Investor recommendations, you don't need to be a subscriber to get these great gains.
Identify new talent
With the help of Motley Fool CAPS, we'll search for the best dividend-paying stocks around. Here are several dividend picks that have also earned high ratings from the 97,000-plus members of our CAPS community:
|
Company
|
Yield
|
CAPS Rating
|
|
AT&T (NYSE:T)
|
4.3%
|
****
|
|
Illinois
Tool Works (NYSE:ITW)
|
2.2%
|
*****
|
|
Verizon (NYSE:VZ)
|
4.9%
|
****
|
|
Wyeth (NYSE:WYE)
|
2.5%
|
****
|
|
Eni SpA (NYSE:E)
|
4.1%
|
*****
|
Source: Capital IQ, Yahoo! Finance, and CAPS as of April 17.
Any one of these quality companies would add some dividend excellence to your portfolio, but I thought I'd kick off further research with a closer look at Illinois Tool Works.
Dependable dividends
As we know, not all dividend payers and dividend payouts are created equal. For that reason it's important to make sure that the dividend you're expecting isn't about to take an extended vacation with the dodo bird. To figure this out, I like to look at the prospects for the company's business, the company's history of paying dividends, and the sustainability of the current dividend.
On the operations side, Illinois Tool Works seems to have nearly as many businesses as hot dogs sold at Yankee Stadium. The company reports its collection of subsidiaries in eight segments, and they pump out products such as plastic stretch film, arc welding equipment, auto body repair putties, metal plate truss components, cooking equipment, laminate worktops, and resin-based coating products.
Still awake? ITW's business may be about as exciting as Ben Stein teaching advanced econometrics, but the upshot is that the company has produced great, stable financial results over its history and is one of the more unshakable companies that you could find.
And when it comes to the dividends, ITW has it covered. Not only has the company been paying dividends for more than a decade, but it has a good record of boosting dividends, too. ITW maintains a conservative balance sheet and produces more than enough cash to cover its payout. In fact, in 2007, the company felt comfortable enough with its cash position that it spent $1.8 billion buying back stock.
CAPS players love ITW, as the 361-to-7 bull-to-bear ratio clearly shows. Harry0925, one of those ITW bulls, pointed out last month why he thinks ITW is a "no-brainer":
[ITW produces] above market returns on capital and an above market dividend and it just sells for a market multiple. Company has steadily increased dividend, margins, and reduced [long-term debt] over the past 5 years. 50% of sales come from overseas markets, and this number will only grow. If that isn't enough, [free cash flow] is higher than earnings, so it is really selling for a below market multiple.
You can see who else has been bullish on ITW, and chime in with your own thoughts, by heading over to CAPS. You may also want to check out a few of the other top-rated dividend payers while you're there.
Dividend stocks could help you transform your portfolio from the flash-in-the-pan Florida Marlins into the dependable New York Yankees. And if you hate the Yankees, it's probably because they're so darn good, so darn often.
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