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.
Unilever, for example, has returned 30% since February 2005, and it's currently rewarding investors with a 3.9% yield. Or consider AllianceBernstein (NYSE: AB), which has returned 75% since September 2004, atop a current 7.1% yield. While these stocks happen to be Motley Fool 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 115,000-plus members of our CAPS community:
|
Company
|
Yield
|
CAPS Rating (5 max)
|
|
Freeport-McMoRan (NYSE: FCX)
|
2.0%
|
*****
|
|
CapitalSource (NYSE: CSE)
|
20.3%
|
****
|
|
Legg Mason (NYSE: LM)
|
2.3%
|
****
|
|
Bristol-Myers Squibb (NYSE: BMY)
|
5.7%
|
****
|
|
Frontier Communications (NYSE: FTR)
|
8.3%
|
****
|
Source: Capital IQ,, Yahoo! Finance, and CAPS as of Aug. 8, 2008.
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 Inside Value recommendation Legg Mason.
The dethroned king of asset management
It's hard to mention Legg Mason without talking about the company's (former?) star manager Bill Miller. If you're not already familiar with Miller, he was the absolute toast of Wall Street during his 15-year streak of beating the S&P 500 index. Then disaster struck. Ill-timed positions on everything from financials like Citigroup (NYSE: C) and Countrywide to homebuilders have crushed Miller's recent performance, leaving investors looking at him as they would regard Gary Busey at a black-tie cocktail party. (Worse yet, Miller isn't the only Legg manager with performance issues.)
For Legg Mason, this means that investor money is fleeing the more profitable equity and fixed-income funds, and heading to the less attractive liquidity funds. But the fun doesn't end there. The liquidity funds haven't been so peachy, either, forcing Legg to infuse new cash and take big writedowns.
But that's the past. What's ahead? CAPS members like All-Star tenmiles think the underperformance will continue:
Believe Bill Miller's halo has about worn off; expect massive losses on his GSE investments with subsequent ongoing client withdrawals - dont think [Legg Mason] is a buy yet
Most CAPS members, however, think that the stock is cheap enough to be a solid bet. CAPS All-Star TMFDitty put his foot down back in May and said:
Legg Mason is valued at just 0.75% AUM [assets under management], but the rule of thumb in investment managers calls for fair value being in the 1% to 2% range. And yet, Bill Miller is one of the best in the business -- so why is the stock trading at such a seeming discount?
Maybe Mr. Market believes continued underperformance by Mr. Miller, and a weak economy generally, will lead to further "capital flight" out of Legg. But another 50% drop in AUM (which the price implies) seems unlikely. More likely -- the stock is just plain cheap. Outperform.
Get into the action
You can check out who else has been bullish on these stocks, 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 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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