The New York Yankees of the '50s and the Chicago Bulls and Dallas Cowboys of the '90s have 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 our Motley Fool Income Investor service's mission.
Petrobras (NYSE: PBR ) , for example, has beaten the S&P 500 by 95 points since August 2007, and it currently is rewarding investors with a 2.7% yield. Or consider Unilever (NYSE: UL ) , which has topped the S&P by 47 points since February 2005, 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 140,000-member CAPS community:
|
Company
|
Yield
|
CAPS Rating
(out of 5)
|
|
Valero (NYSE: VLO )
|
3.3%
|
*****
|
|
Deere (NYSE: DE )
|
2.6%
|
****
|
|
McDonald's (NYSE: MCD )
|
3.6%
|
****
|
|
Altria (NYSE: MO )
|
7.3%
|
****
|
|
Kinder Morgan Energy Partners (NYSE: KMP )
|
7.9%
|
****
|
Source: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and CAPS as of Sept. 10.
Any one of these quality companies would add some dividend excellence to your portfolio, but let's take a closer look at why CAPS members think that Kinder Morgan Energy Partners is worth a hard look.
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.
Kinder Morgan offers the fattest dividend of our group, but that makes sense, because the stock is all about the dividend. The company is set up as a limited partnership that owns and operates a vast web of pipeline and storage assets that distribute products like natural gas, gasoline, crude oil, and carbon dioxide. Rather than keep capital on hand, the idea at Kinder is to use these income-producing assets to distribute ever-increasing dividends to shareholders.
As a pipeline business, Kinder is practically the picture of stability. While the volume of products transported does fluctuate, it's unlikely that we're going to see any wild downward swings in the use of, say, gasoline in the near future. And while the company does have some exposure to the prices of the products it transports, it not only hedges this exposure, but also stands to benefit from increased demand if prices fall.
The one area to look out for when it comes to Kinder is debt. The company uses healthy amounts to finance its capital spending -- whether that's maintaining equipment, building new equipment, or making acquisitions -- and had nearly $10 billion in debt on its books at the end of June. The extent to which Kinder depends on the debt markets means that it could be in a precarious position if lenders start getting squeamish again or interest rates spike.
What the bulls say
Kinder Morgan hasn't quite reached the perfect five-star level on CAPS, but it does sport more than 1,000 outperform ratings, against just 46 underperforms. What do community members like about the stock? It's not hard to guess: the dividend.
CAPS All-Star katinga said this when giving the stock a thumbs-up earlier this summer:
Good inflation hedge, since KMP charges companies to use its pipelines and can raise rates like a utility, but without the regulation. Despite the dull-sounding nature of the business, the company is innovating by building pipelines that can carry ethanol. Not so long ago, we all thought the stuff could only be trucked.
Strong record of dividend increases. Looking for acquisitions.
Get into the action
You can check out who else has been bullish on these top-rated dividend payers, as well as chime in with your own thoughts by heading over to CAPS.
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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