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

Abbott Labs (NYSE: ABT  )

2.6%

3.6%

9%

ConocoPhillips (NYSE: COP  )

2.7%

3.8%

14%

AT&T (NYSE: T  )

4.8%

6.6%

6%

Johnson & Johnson (NYSE: JNJ  )

2.6%

3.3%

11%

Procter & Gamble (NYSE: PG  )

2.5%

3.1%

11%

China Mobile (NYSE: CHL  )

2.7%

3.5%

45%

Chevron (NYSE: CVX  )

3.1%

3.6%

11%

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, and owns shares of China Mobile. Johnson & Johnson and Procter & Gamble are Motley Fool Income Investor choices. The Motley Fool owns shares of China Mobile, Johnson & Johnson and Procter & Gamble. The Motley Fool's disclosure policy is trendy.


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