The New York Yankees of the '50s and the Chicago Bulls and Dallas Cowboys of the '90s had 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 guru Jeremy Siegel and others have shown time and time again. Finding them is our Motley Fool Income Investor service's mission.
Diageo (NYSE: DEO ) , for example, has returned 66% since April 2004, and it currently is rewarding investors with a 3.2% yield. Or consider Sasol (NYSE: SSL ) , which has returned 28% since October 2007, 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 100,000-plus members of our CAPS community:
|
Company
|
Yield
|
CAPS Rating
(5 max)
|
|
Telefonica (NYSE:TEF)
|
3.5%
|
*****
|
|
British American Tobacco (AMEX:BTI)
|
4.8%
|
****
|
|
General Mills (NYSE:GIS)
|
2.6%
|
****
|
|
Manulife Financial (NYSE:MFC)
|
2.6%
|
*****
|
|
Vulcan Materials (NYSE:VMC)
|
3.0%
|
****
|
Sources: Capital IQ, Yahoo! Finance, and CAPS as of May 9.
Any these quality companies would add dividend excellence to your portfolio, but I thought I'd kick off further research with a close look at General Mills.
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.
You might say that stability is to General Mills what senseless drama is to The Hills -- they go hand in hand. The company traces its origins back to the 1860s when -- surprise, surprise -- it was involved with new flour milling techniques. Between then and now, though, the company has branched out significantly and is now home to some of the most iconic brands in the food business: Betty Crocker, Pillsbury, Cheerios, Wheaties, Progresso, Yoplait, Green Giant -- to name a few.
And dividends don't get disrespected at General Mills either. On its website, the company gives its quarterly dividend history back to 1994, although it also proudly notes that it has "paid shareholder dividends, uninterrupted and without reduction, for 109 consecutive years." Not too shabby!
Over the past 12 months, General Mills' dividend payments were just a hair more than 50% of free cash flow, so it is certainly not cutting it close. And the company is taking gobs of its extra cash to return even more money to shareholders by buying back shares.
On CAPS, the stock hasn't found its way to five-star status, bouncing between three- and four-star ranking over the past six months, but it's nonetheless a fan favorite with an outperform-to-underperform ratio of more than 9-to-1. CAPS player EverRocks recently rated General Mills an outperformer on the expectation that the poor economy would benefit the company's products:
With the bad economy people start eliminating things that aren't essential in there lives. Breakfast represants a cheap way for the home consumer to cut cost. Instead of a cup of coffee at Starbucks or a food at Denny's ... a bowl of cereal at home.
You can check out who else has been bullish on General Mills, and chime in with your own ideas, by heading to CAPS. You may also want to check the other top-rated dividend payers above 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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