Ruth, Jordan, Montana. You don't have to be a sports fan to recognize those names, and there's a very good reason for that. All three of these athletes made magic happen whenever they competed. Even more importantly, when the chips were down, you could still count on these guys to deliver.
In times of economic turmoil, wouldn't it be great to have a performer like that in your portfolio? Well, high-quality dividend payers can be just the kind of day-in and day-out all-star you're looking for.
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. At the same time, they can provide a solid defense against crazy market conditions. Finding them is the mission of our Motley Fool Income Investor service.
Invesco (NYSE: IVZ ) , for example, has beaten the S&P 500 by 39 points since October 2004, and it currently is rewarding investors with a 3.3% yield. Or consider Philippine Long Distance Telephone (NYSE: PHI ) , which has topped the S&P by 15 points since June 2008, atop a current 6.6% 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 125,000-plus members of our CAPS community:
|
Company
|
Yield
|
CAPS Rating (out o 5)
|
|
International Business Machines (NYSE: IBM )
|
2.2%
|
****
|
|
BP (NYSE: BP )
|
8.6%
|
*****
|
|
Alcoa (NYSE: AA )
|
10.4%
|
****
|
|
Paychex (Nasdaq: PAYX )
|
5.4%
|
****
|
|
Northrop Grumman (NYSE: NOC )
|
4.1%
|
****
|
Source: Capital IQ, a division of Standard & Poor's; Yahoo! Finance; and CAPS as of Feb. 26. Yields may not reflect recent corporate actions.
If you like what you see, but want more, you can run this screen for yourself with CAPS' handy screener. While these are not formal recommendations, they're a great place to kick off further research and potentially add some dividend excellence to your portfolio. In fact, I'll even get you started with some thoughts on Paychex.
Does my dividend have a glass jaw?
The last thing we want in a dividend-payer is the risk that the company will fall off a cliff and have to pull back its dividend. This usually ends up being a double whammy, because not only do you lose your dividend payout, but many of the dividend-loving investors who own the stock will run for the hills, causing the stock price to fall.
Paychex has been pretty darn generous with shareholders when it comes to dividends. For more than a decade now, the company has not only been consistent about its payouts, but has done a good job growing the dividend as well.
A quick look at Paychex's cash flow statement shows that, though the company has sent $440 million back to shareholders in the form of dividend checks over the past year, this was well covered by $613 million of free cash flow (operating cash flow less capital spending). In fact, the company has generated so much extra cash that it was able to spend $1 billion during the 2008 fiscal year (which ended last May) buying back stock. The balance sheet tells a similarly safe story -- it's hard to argue with the company's $400-million-plus in cash and investments and lack of debt.
What the bulls say
Paychex’s business will not skate through the recession unscathed. Since the company charges per employee, layoffs at the companies it serves will lower its fees. We also can't discount the potential that Paychex customers -- which are mostly small and medium-sized businesses -- may go out of business altogether. At the same time, Paychex pockets interest income on its own investments as well as on funds held for clients. The current ultra-low interest rates are putting a major damper on these lines of the company's income statement.
However, the company has a very broad base of customers -- roughly 572,000 as of May 2008 -- and its services tend to be very sticky. Though earnings per share fell slightly in the company's fiscal second quarter, revenue and operating income both increased from the prior year. Looking ahead, we can probably expect earnings to fall further in the current fiscal year, but not by a great deal.
And if we turn to CAPS, we can get some even more bullish takes on the company. CAPS All-Star TMFBuck, for example, gave a thumbs-up to Paychex earlier this month, saying:
What a phenominal company. This is not a macro bet. I love this company, its margins, and it's moat and now the price is right. Take the dividend and wait until things turn around in the economy. They also should get a nice boost when/if interest rates finally go up as they aren't earning much on their float these days. Sure they will lose some business as unemployment climbs. It will no doubt get worse than it is today but I think that and more is baked into this price.
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 Bad News Bears to the Dream Team. And really, could you argue with having Michael Jordan, Magic Johnson, and Sir Charles Barkley helping your portfolio chalk up wins?
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