This Millennium's 10 Best Dividend Stocks

I'm always on the lookout for the next home run stock. From time to time, I like to look back and see what I can learn from the best- and worst-performing stocks over the long term. I make sure to key in on dividend stocks, because they have a history of outperforming the market.

By examining the top performers of the last 11 years, I want to find traits that the top performers of the 2010s should also have. I sought stocks with a market cap greater than $1 billion and steady annual dividend payments, and I excluded royalty trusts or master limited partnerships, which are taxed differently. Here's what I found:

Rank

Company Name

Return Since Millennium

Current Yield

1

HollyFrontier (NYSE: HFC  )  5,016.3%  0.9%

2

Raven Industries (Nasdaq: RAVN  )  2,815.6%  1.4%

3

Precision Castparts (NYSE: PCP  )  2,260.9%  0.1%

4

Southern Copper (NYSE: SCCO  )  2,252.6%  8%

5

Lufkin Industries (Nasdaq: LUFK  )  2,119.3%  0.8%

6

PotashCorp (NYSE: POT  )  2,060.5%  0.5%

7

Cliffs Natural Resources (NYSE: CLF  )  2,056.3%  1.5%

8

World Fuel Services (NYSE: INT  )  1,973%  0.4%

9

Valhi (NYSE: VHI  )  1,450.1%  1%

10

Cabot Oil & Gas (NYSE: COG  )  1,285.9%  0.2%

Source: Capital IQ, a division of Standard and Poor's. Return from Dec. 31, 1999-Aug. 23, 2011.

HollyFrontier was the top dividend stock of the millennium so far, with a return of 5,016.3%. So what do all these stocks have in common?

  Company Name Market Cap on Dec. 31, 1999

1

HollyFrontier  $109 million

2

Raven Industries  $59 million

3

Precision Castparts  $643 million

4

Southern Copper  $1,233 million

5

Lufkin Industries  $96 million

6

PotashCorp  $2,614 million

7

Cliffs Natural Resources  $344 million

8

World Fuel Services  $91 million

9

Valhi  $1,203 million

10

Cabot Oil & Gas  $109 million

Source: Capital IQ.

They were all small-caps or mid-caps at the beginning of the millennium and were paying dividends.

Dividend champions
So why have these companies' stocks done so well? You'd figure Wall Street would have caught on. But analysts only have so much time, so they ultimately overlook many small-cap stocks. That creates a perfect opportunity for enterprising investors to capitalize on Wall Street's lack of vision by getting in on companies on the cheap, before the rest of the market has discovered them.

One small-cap stock for the rest of the millennium!
Sorry -- that's not happening. I highly doubt that any companies around today will be with us in the year 3000. The technological rate of change is too fast, and historically, the odds aren't good. According to Wikipedia, only 11 companies that were around 1,000 years ago are still with us today. Four of them are Japanese hotels.

While we can't know for sure what the best dividend stock this millennium will be, I asked our team of investment analysts for their favorite small-cap dividend stock. They recommended Seaspan (NYSE: SSW  ) .

Company

Yield

Market Cap

P/E

CAPS Rating (out of five stars)

Seaspan 6% $857 million 19.3 *****

Seaspan is a container ship company that has been greatly expanding its fleet. Unlike many other shippers, Seaspan operates through long-term, fixed rate contracts that average 11 years. These enable it to profit without worrying about fluctuations in dayrates, a key worry for many other shippers.

By March of 2012, the company will own 68 container ships, which it paid for by taking on more debt and cutting its dividend. That cut pummeled shares, creating an opportunity for enterprising investors to get in on the cheap. Seaspan plans to restore its dividend as it brings its expanded fleet online. Since the cut, the company has already raised its payout by 87.5% to $0.75 annually, with more increases are on the way.

With a newly increased fleet, the company expects its cash available for the dividend to run around $300 million per year. Assuming a payout ratio of 50%, this would triple the dividend's current amount, an increase that would likely lead to related gains in share price. In the meantime, at today's prices, the dividend is worth a 6% yield -- a hefty payout to collect while you wait for the shares to appreciate.

Your next step
Seaspan is a strong dividend stock for your portfolio. If you're looking for some more great dividend stocks to round out your portfolio, look at a new, free report from Motley Fool's expert analysts called "13 High-Yielding Stocks to Buy Today," including one named by a senior analyst as "the dividend play of a lifetime." Hundreds of thousands have requested access to this report and today I invite you to download it at no cost to you. To get instant access to the names of these 13 high-yielders, simply click here -- it's free.

Dan Dzombak can be found on his twitter account: @DanDzombak. He doesn't own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Seaspan. Motley Fool newsletter services have recommended buying shares of Precision Castparts. Motley Fool newsletter services have recommended creating a write covered straddle position in Seaspan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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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 August 24, 2011, at 5:17 PM, Fool wrote:

    Dan,

    First off, great article -- and I love hearing about small-cap picks that have the potential to take off like rockets.

    But, I'm leery of Seaspan's projections. You said that they expect to pay out $300 million/yr in dividends. However, SSW hasn't had a year of positive free cash flow since 2004 (and even then it was only $11 million).

    Am I missing something, or is it a bit of a stretch to assume that their fleet expansion is going to plant money trees for them?

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Related Tickers

12/18/2014 1:04 PM
SSW $19.02 Up +0.31 +1.66%
Seaspan CAPS Rating: *****
CLF $6.33 Down -0.09 -1.33%
Cliffs Natural Res… CAPS Rating: ***
COG $31.74 Up +0.08 +0.25%
Cabot Oil & Gas Co… CAPS Rating: ****
HFC $36.46 Down -0.44 -1.19%
HollyFrontier Corp… CAPS Rating: ****
INT $47.43 Down -0.13 -0.27%
World Fuel Service… CAPS Rating: *****
LUFK.DL $0.00 Down +0.00 +0.00%
Lufkin Industries,… CAPS Rating: ****
PCP $235.80 Up +2.10 +0.90%
Precision Castpart… CAPS Rating: *****

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