Contrarian investors should use times like these to differentiate between stocks that are dropping for fundamentally sound reasons and those that are simply being dragged down because of general market concerns. Sure, there's plenty to worry about -- gigantic federal deficits, sovereign-debt problems in Europe, an economic slowdown in China -- but let's not forget that in the midst of all of this volatility lies the prospect to grab some great companies at dirt-cheap prices.
In particular, I'm a huge fan of dividend stocks. Renowned professor Jeremy Siegel has illustrated that from 1957 to 2003, when reinvesting dividends, the S&P's 100 highest-yielding stocks outperformed the market by an average of 3 percentage points. Over a long period of time, 3 percentage points can really add up. So if you can find dividend stocks trading cheaply and can separate the good from the bad, you may have found yourself a real winner.
In this regular series, I run a screen for dividend stocks that have gotten crushed in the past four weeks, in addition to companies that are trading at low P/Es. Following are the top seven dividend-paying financial stocks with yields over 2.5% that have gotten beaten down the most, in order of their share depreciation. Also included are ratings from our own 180,000-strong CAPS community.
|
Company |
Dividend Yield |
4-Week Price Change |
P/E Ratio |
CAPS Rating |
|---|---|---|---|---|
|
Universal Insurance |
9.4% | (22.4%) | 5.1 | ***** |
|
Federated Investors |
6.2% | (17.5%) | 10.0 | **** |
|
Oppenheimer Holdings |
3% | (15.2%) | 9.1 | ***** |
|
Manulife Financial |
4.6% | (12.6%) | 10.2 | **** |
|
Tower Group |
3.6% | (10.6%) | 12.3 | **** |
|
Chimera |
19.8% | (8.4%) | 5.4 | **** |
|
Travelers |
3% | (6.7%) | 14.4 | **** |
Source: Motley Fool CAPS. Data current as of Dec. 5.
It's not a surprise that many of these companies are property and casualty insurers. Despite lower expense ratios and an organic increase in revenues at companies like Tower Group, Hurricane Irene damaged almost everyone's business during the quarter. Tower reported a $39.1 million catastrophe charge, while Travelers posted an underwriting loss of $289 million and a net $606 million catastrophic hit.
Financial companies in general haven't done all that well in the past month, but REITs such as Chimera have fared even worse. A few months ago, the SEC launched a review that could possibly subject REITs to tighter regulation, treating them as investment companies instead of trust companies. The uncertainty regarding the issue surely has some play on the share price, not to mention that Chimera had to delay its Q3 reporting because of uncertainty regarding the value of some its holdings -- never a great sign.
A Foolish final thought
Over the past four weeks, the S&P 500 has basically been flat, so the companies I've mentioned here have gotten crushed pretty badly, either for good reason or not. It's up to you to decide whether these decreases represent a buying opportunity or just a reversion to the appropriate price considering each company's specific business conditions.
If you think one of these companies has gotten unfairly hammered, now could be a great time to pick up some heavy dividend payers at a great price. With the stock market acting as volatile as it has, and with investors looking for different ways to generate income, dividend-paying stocks such as these could have the potential to give you exactly what you're looking for.
But if none of these companies seems to pique your interest, we've just generated a brand-new free report, "Secure Your Future With 11 Rock-Solid Dividend Stocks." Included are some of the best-known companies in the world, and some you've probably never even considered before. Get your free copy!
