5 Dynamic Dividend Stocks

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 the mission of our Motley Fool Income Investor service.

Total (NYSE: TOT  ) , for example, has beaten the S&P 500 by 48 points since December 2003, and it currently is rewarding investors with a 5.4% yield. Or consider South Jersey Industries (NYSE: SJI  ) , which has topped the S&P by 38 points since December 2006, atop a current 3.5% 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 135,000-plus members of our CAPS community:

Company

Yield

CAPS Rating
(out of 5)

ExxonMobil (NYSE: XOM  )

2.3%

****

Chemical & Mining Company of Chile (NYSE: SQM  )

2.9%

*****

Intel (Nasdaq: INTC  )

3.4%

****

Burlington Northern Santa Fe (NYSE: BNI  )

2.1%

****

Canadian National Railway (NYSE: CNI  )

2.0%

*****

Source: Capital IQ, a division of Standard & Poor's; Yahoo! Finance; and CAPS, as of June 11. 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. I'll kick you off with some thoughts on Canadian National Railway.

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: Not only do you lose your dividend payout, but many of the dividend-loving investors who own the stock will also 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, financial statements, and business stability.

You can certainly find companies that have paid a dividend for longer than Canadian National. The company has been returning profits to shareholders for more than a decade, though, and, better still, it's boosted that payout every year. All in all, I think the dividend history starts us off on a good note.

Turning to Canadian National's financial statements, there's not much to dampen enthusiasm. Free cash flow -- that is, cash flow from operations minus capital expenditures -- has been not only strong, but very consistent. The company has used this cash to pay out that dividend and to buy back billions of dollars of shares.

The balance sheet does carry a substantial amount of debt, but the interest on that debt is adequately covered, so we don't have to worry much about that for now.

As for business stability, we can't exactly say that Canadian National is insulated from the current economic dysfunction. As rapidly falling volumes at U.S. rail operators have shown, a dismal economy reduces demand for transporting goods like metals, autos, and timber. Through the first quarter of this year, Canadian National continues to look like it's weathering the storm, but there's no promise that things will remain rosy if the economy doesn't start to show some life soon.

What the bulls say
With 1,294 CAPS members sticking their thumbs up on Canadian National, it's clear that there's something to like about this stock. To get a better idea about what that something is, let's take a look at what CAPS member pablogrimes had to say when giving the stock an outperform rating back in March:

Oil prices will rise. Not if, but when. Rail is inherently more efficient at moving cargo than interstate trucking. When merchandisers wake up to this cost-saving opportunity, there are very few major players left, and [Canadian National Railway] is well-placed to service N-S or E-W routes in the US & Canada, including major seaports on three coastlines.

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 listed 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?

More CAPS Foolishness:

Canadian National Railway is a Motley Fool Stock Advisor recommendation. Intel is a Motley Fool Inside Value selection. South Jersey Industries and Total SA are Motley Fool Income Investor recommendations. The Fool sold puts on Intel. Try any of our Foolish newsletters today, free for 30 days

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out the stocks he's keeping an eye on by visiting his CAPS portfolio or connect with him on Twitter @KoppTheFool. The Fool's disclosure policy pays its dividends in reliability.


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  • Report this Comment On June 12, 2009, at 11:13 AM, ReadEmAnWeep wrote:

    I am a young investor without a lot of money at the moment. Would the growing dividend route be a good one for me, or would I be better off chasing wild growth since I have a lot of time for it?

    Also, what are the advantages of trying to use DRIPs vs say buying dividend stocks in my broker account and waiting for the dividend to pile up enough to buy more from my broker again (assuming that the accumulated dividends + my added money beat down the bite from commissions enough)

  • Report this Comment On June 12, 2009, at 4:45 PM, TMFKopp wrote:

    ReadEm-

    Age is an important factor in determining how you invest, but it needs to be considered in combination with other factors, such as your general tolerance for risk, the amount of time you have available for research, and which investing styles resonate with you.

    If you're interested in dividends, I'd recommend checking out the Income Investor newsletter (there's a link above). You can get a free trial for 30 days which will give you long enough to check out the kind of stocks that the advisers recommend, as well as talk to some of the folks on the Income Investor discussion boards.

    Matt

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