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 that kind of day-in and day-out all-star that 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 our Motley Fool Income Investor service's mission.
Enterprise Products Partners (NYSE: EPD ) , for example, has beaten the S&P 500 by 37 points since March 2006, and it is currently rewarding investors with a 7.8% yield. Or consider VF Corp (NYSE: VFC ) , which has topped the S&P by 41 points since June 2006, atop a current 3.4% 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 130,000-plus members of our CAPS community:
|
Company
|
Yield
|
CAPS Rating (max 5)
|
|
Chevron (NYSE: CVX )
|
4.0%
|
****
|
|
Yum! Brands (NYSE: YUM )
|
2.2%
|
****
|
|
Union Pacific (NYSE: UNP )
|
2.2%
|
****
|
|
Taiwan Semiconductor Manufacturing (NYSE: TSM )
|
4.4%
|
*****
|
|
Illinois Tool Works (NYSE: ITW )
|
3.7%
|
****
|
Source: Yahoo! Finance and CAPS as of April 23. All yields listed are trailing and 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 kick you off with some thoughts on Illinois Tool Works.
Does my dividend have a glass jaw?
The last thing we want in a dividend paying company 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 that own the stock will run for the hills, causing the stock price to fall.
With that in mind, there are three places that I immediately tune into when kicking the tires of a dividend payer -- dividend history, balance sheet strength, and cash flow.
The dividend history for Illinois Tool Works definitely starts us off on the right foot. Not only has the company been consistently been paying dividends for a couple of decades, it has been consistently raising its dividend for a couple of decades. Over the ten years ending in 2008, ITW jacked up its annual payout from $0.27 per share to $1.18 per share, for average annual growth of about 16%.
The company's balance sheet, which has a debt-to-equity ratio just over 50% and above $1 billion in cash and equivalents, is pretty middle of the road, but certainly not concerning. Its cash flow, on the other hand, looks great, with free cash flow production well above the dividend commitment.
What the bulls say
Thanks to a $90 million non-cash write-down to goodwill and related intangibles, Illinois Tool Works' first quarter didn't look too hot. It also has avoided providing guidance past the next quarter given the uncertainties of the current economy. But the company's second quarter is expected to be better than the first, and even with the loss showing on the income statement, ITW still managed to produce over $350 million of free cash flow during the quarter.
It's little wonder that ITW's stock has had a good reception on CAPS, even if it isn't quite at five-star status. CAPS member Quicksilver121 outlined last month why the company is able to prosper despite its large number of different business units:
[Illinois Tool Works] is a large company that allows their business units to manage their future. ITW supports the units with guidance (80/20 philosophy) and capital not bureaucracy. This allows their units to stay focused on what they need to do to grow their business. This along with strategic acquisitions will allow ITW to outperform in the future.
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 help your portfolio chalk up wins?
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