Buy These Stocks Before the Trend Reverses

I probably would have shied away from writing a follow-up column if I had given bad advice ... but it turns out that my advice was spot-on.

As I pointed out at the beginning and in the middle of 2008, dividend-paying stocks make the best bear-market investments.

The reasons were simple:

  1. Dividend yields rise as stock prices drop.
  2. Companies that have the quarterly obligation to pay dividends to shareholders tend to be more financially able to withstand difficult times.

But as I pointed out last February, it's important for investors to buy shares of the strongest dividend-paying companies. In other words, companies with realistic payout ratios, promising growth prospects, and a solid balance sheet.

Yet even though the market has rocketed off bear-market lows ...
Today is still a perfect time to get in on dividend-paying stocks.

Why?

Many stocks of strong companies are still yielding more than their five-year average, but not because these companies' businesses are on the rocks. No, these high yields exist because the stock's price is still depressed, and the dividends have grown.

Just take a look at these mid caps and large caps and their attractive yields. All of these companies have increased their dividend payments over those five years (an excellent sign of health).

Company

5-Year Average
Dividend Yield

Current
Dividend Yield

5-Year Average
Growth Rate
in Dividend

Garmin (Nasdaq: GRMN  )

1.8%

3.9%

30%

Monsanto (NYSE: MON  )

0.9%

1.5%

30%

Boeing (NYSE: BA  )

2.2%

2.3%

17%

Qualcomm (Nasdaq: QCOM  )

1.3%

1.6%

22%

IBM (NYSE: IBM  )

0.8%

1.7%

28%

Wal-Mart (NYSE: WMT  )

1.7%

2.2%

17%

ExxonMobil (NYSE: XOM  )

1.9%

2.5%

10%

Data from DividendInvestor.com.

How you can cash in today
So regardless of whether the market has completely bottomed or we're just enjoying a temporary upward surge, you'd do well to buy strong dividend-paying stocks while their prices are relatively low and they can still boast such historically high yields.

After all, you'd hate to end up missing out on the next short-term movement up, or -- even worse -- the long-term trend that dividend-paying stocks have of outperforming.

Here at the Fool, James Early -- advisor of Motley Fool Income Investor -- and his team scour the market every month for new dividend stock ideas -- and right now they're finding many.

In addition to these new recommendations, the Income Investor team has compiled a "best in class" group of six core dividend stock recommendations, each of which boasts a long history of paying out dividends to shareholders and outperforming the market.

Find out which stocks made the cut, along with the team's top dividend pick for this month, completely free by clicking here.

Already a member of Income Investor? Log in at the top of this page.

This article was originally published Aug. 12, 2009. It has been updated.

Adam J. Wiederman always takes note of investing trends and acts accordingly, but doesn't own shares of the companies above. Monsanto and Wal-Mart are Motley Fool Inside Value recommendations. The Motley Fool's disclosure policy is trendy.


Read/Post Comments (4) | Recommend This Article (16)

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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 April 10, 2010, at 9:30 AM, hydragenius wrote:

    Recommending Garmin as a stock likely to bounce back now the recession is ending is absurd. Garmin was absurdly bid up, and is now facing competition from myriad smart phone makers. It's entire future is in question.

    I have no particular comment on the others, except that Monsanto is pure evil.

  • Report this Comment On April 10, 2010, at 10:21 AM, vickifool wrote:

    This article is mis-leading. Dividend Yield is dividend/stock price. When the stock price drops, the dividend yield rises. That's not the same as increasing the dividend.

    Also Monsanto is evil. Their gene-engineered seeds contaminate other fields, and then they sue the farmers who own the contaminated fields.

  • Report this Comment On April 10, 2010, at 2:17 PM, mountain8 wrote:

    I would definately not recommend Evil Garmin, they are only up 25% for the calendar year. And of course I would never think of investing in an evil entity like the US Government, or the church, or any bank or other business. My money is safely pure and sactimonious stuffed in my mattress.

  • Report this Comment On April 19, 2010, at 6:15 PM, wolverine1987 wrote:

    Monsanto is on the side of the angels, anyone who says they are evil are sadly misinformed, uneducated, and deficient in philosophical approach. I bought Monsanto at 65 and will happily watch it rise to 85, meanwhile their genetically engineered seeds will make it possible for millions of poor people in the third world to grow food.

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