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 gurus such as Jeremy Siegel have shown time and time again. Finding them is the mission of our Motley Fool Income Investor service.
Petrobras (NYSE: PBR ) , for example, has returned 111% since August 2007, and it is currently rewarding investors with a 3.2% yield. Or consider France Telecom (NYSE: FTE ) , which has returned 48% since January 2006, atop a current 6% 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 110,000-plus members of our CAPS community:
|
Company
|
Yield
|
CAPS Rating (out of 5)
|
|
Merck (NYSE: MRK )
|
4.6%
|
****
|
|
Eaton (NYSE: ETN )
|
2.8%
|
*****
|
|
Garmin (Nasdaq: GRMN )
|
2.1%
|
***
|
|
Marathon Oil (NYSE: MRO )
|
2.1%
|
****
|
|
EnCana (NYSE: ECA )
|
2.2%
|
*****
|
Sources: Capital IQ, Yahoo! Finance, and CAPS as of July 31.
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 Motley Fool Stock Advisor recommendation Garmin.
You get dividends too!
Is Garmin really a dividend stock? That’s a little like asking whether Russell Crowe is really a musician. Sure, Russell is in a band, but he's still primarily an actor, just as most people still consider Garmin primarily a growth stock. That's not to say that the dividend on the side isn't a nice compliment.
Garmin certainly has earned that "growth" designation, though. In the five years ending in 2007, the company grew revenue nearly 600%. Though margins have come down a bit, it remains a fantastically profitable company, with a net income margin north of 25% over the past 12 months.
Investors have recently had a bad case of “What have you done for me lately?” when it comes to Garmin, though. Though sales grew 23% in Garmin's second quarter, the slowdown in consumer spending (and the fact that it’s expected to continue) has weighed on investors' expectations for the stock. As a result, the stock has fallen from as much as $125 per share to today's sub-$35 price tag.
While that is no doubt frustrating for current investors -- to say the least -- it has created a very attractive situation for potential new investors. Valuation has come way down from the historical multiples in the mid-$20s to low $30s to today's sub-$9 multiple. And, of course, as the stock price has come down, the dividend yield has beefed up -- today's 2.1% yield may not turn too many heads, but it's up from 0.6% when the stock was trading at $125.
Nearly 5,000 CAPS members are bullish on Garmin. Among them is CAPS All-Star slbutton, who gave the stock a thumbs-up in early March, saying:
This is a company with an outstanding track record, great founding management with a big stake, and enviable fundamentals. ... Thus far, growth in volume has made up for erosion in margins, which are still respectable. GPS will become virtually standard equipment in cars, and I think Garmin has advantages in size, quality, and brand recognition over its competitors. If they can break into the mobile handset/PDA market with devices that are sufficiently different from those offered by Motorola, Nokia, etc., I expect them to do well there, too.
Get into the action
You can check out who else has been bullish on these stocks, as well as 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 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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