7 Solid Stocks for Skeptical Investors

In better times, you could buy a stock and count on it going up over the long run. But the events of the past decade have many investors questioning even that fundamental tenet of the stock market. If you're skeptical about whether your investments will rise in value over the years, then there's no substitute for stocks that prove their value year in and year out.

It's all paper
By now, many investors feel like they have a severe case of whiplash. After seeing the bull market of the 1990s raise stock prices to unprecedented levels, stocks proceeded to lose half their value from 2000 to 2002 -- only to rise again to set new records. That victory was short-lived, however, as 2008's bear market again pushed stocks back down to 10-plus year lows.

Along the way, you've probably seen numerous stock picks that initially seemed like great selections turn into complete disasters. Having profits on paper is nice, but if you never see any of the fruits of a stock's success, then the only thing that matters is how much you paid to buy your shares, and how much you get when you sell. The ups and downs in the stock's price in the interim don't mean a thing.

But if you want something more tangible than paper gains from your stocks, there's an alternative whose value no one can dispute. By investing in stocks that offer significant dividends, you'll reap the benefits of owning shares each time you receive a dividend payment.

Show me the money
You might think that given how small most dividends are, compared to the market price of a stock, they're hardly worth considering at all. But as long-term investors know, all it takes is time to turn even the smallest payouts into big profits.

For instance, let's take a look back at the last 10 years, which many are now affectionately calling the lost decade. The S&P 500 couldn't manage to break even over that period.

Many stocks haven't seen much of a price change in their shares since 2000. But among them, some that pay sizable dividends have actually seen fairly substantial total returns. Take a look at these seven stocks:

Stock

10-Year Price Change

10-Year Total Return

Dividends Paid Per Share Since 2000

Nicor (NYSE: GAS  )

15.9%

87.4%

$18.28

Kimco Realty (NYSE: KIM  )

10.3%

91.6%

$11.76

Procter & Gamble (NYSE: PG  )

31.4%

64.5%

$11.59

H.J. Heinz (NYSE: HNZ  )

25%

80.7%

$14.46

ConAgra Foods (NYSE: CAG  )

15.5%

70%

$8.90

Limited Brands (NYSE: LTD  )

18.4%

63.4%

$6.01

Kimberly Clark (NYSE: KMB  )

(1.7%)

32.4%

$18.03

Source: Yahoo! Finance. As of Feb. 9. Prices and dividends adjusted for splits.

As you can see, those stocks hadn't enjoyed much in the way of capital appreciation since 2000. But when you add dividends to the picture, suddenly the total returns involved look a lot more attractive. And when you compare the amount of cash you've received in dividends over the years to what you actually paid for the shares 10 years ago, you'll realize that many investors have already gotten back a good portion of what they invested in the first place.

What dividends prove
Of course, you might respond that many investors never actually touch the cash they get from dividends. Instead, they plow it right back into additional shares of stock. That strategy works even better than taking the cash when your stock goes up or stays steady over time -- but it can backfire if you pick a stock like General Motors or Fannie Mae that never recovers from its huge losses.

Regardless, dividends give you a tangible measure of value that is reassuring during times of uncertainty. No matter what price the market puts on a particular stock at any given moment, the money companies pay out in dividends is real. Once you get it, no one can take it away from you.

So if you're skeptical about the future of the overall market, take a close look at dividend-paying stocks. Capital appreciation is never a sure thing, but the combination of solid underlying businesses and substantial payouts you'll receive will make a believer out of you.

If you want to the top dividend stocks you can find, look no further. Todd Wenning can tell you the best dividend stocks of the decade.

Fool contributor Dan Caplinger knows how little things add up over time. He doesn't own shares of the companies mentioned in this article. H.J. Heinz, Kimberly Clark, and Procter & Gamble are Motley Fool Income Investor picks. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy was designed with skeptics in mind.


Read/Post Comments (6) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 10, 2010, at 1:56 PM, memoandstitch wrote:

    It would be interesting if you also list how much more debt these companies have taken on. Many companies borrow to pay dividend.

  • Report this Comment On February 10, 2010, at 4:16 PM, TMFGalagan wrote:

    @memoandstitch -

    Good question. A quick look at the past five years shows that several of those companies have seen long-term debt levels rise. In most cases, though, I'd argue that the borrowing isn't really related to the dividend payments.

    best,

    dan (TMF Galagan)

  • Report this Comment On February 10, 2010, at 5:18 PM, georcole wrote:

    @memoandstitch

    If they are taking on debt to pay their dividend, they cannot continue to pay a dividend for long. Many companies TEMPORARILY run into tough times and are forced to pay out dividends with their cash reserves or use debt. Again that scenario cannot continue for long. They will eventually have to cut or discontinue their dividend if they have to borrow to pay it. Just like you and I cannot keep getting new credit cards and charging them up, then getting more new credit cards and charging them up, etc. eventually there is no more credit to be had.

    George

  • Report this Comment On February 10, 2010, at 8:38 PM, memoandstitch wrote:

    @George

    That's exactly my point. The stocks that dan (TMF Galagan) suggests might not be solid at all if their dividends are accompanied by debt.

    I don't have the data but I suspect that some companies have increased their debt load by a significant fraction (or multiples) of the dividend paid.

    Lesson from this crisis: You can be easily fooled if you don't look at the balance sheet.

  • Report this Comment On February 11, 2010, at 8:38 AM, wolfhounds wrote:

    It would have been interesting to see more companies with long dividend paying history on the list. KO, PEP, and CL come to mind. I own many of those mentioned as well as PEP, CL for the very reason you write about.

  • Report this Comment On February 11, 2010, at 5:18 PM, SUPERMANSTOCKS wrote:

    THESE GUYS LEFT OUT THE SYMBOL SNAK ! This is outperforming the S&P500 and has little or no debt.

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