We are largely in the same economic position we were in back in September 2011: The American recovery slowly creeps along, while worries continuously emanate from Europe.
Back then, I wanted to find super dividend stocks that would beat the market no matter its direction. Specifically, I looked for quality companies with big, sustainable dividends that also had the chance for price appreciation.
Though nine months isn't long enough to claim absolute victory over Mr. Market, the seven stocks I selected have performed remarkably well. When accounting for dividends, a portfolio of these seven companies has returned a whopping 29.4%, beating the S&P 500 by over 11 percentage points.
Today, I set out to find five more super dividend stocks that share three key attributes that will lead to market-thumping results.
1. Fat dividend yields
We aren't going to mess around with measly 1% yields. I demand stocks that offer up at least a 3% yield. As I've shown, reinvesting dividends plays a huge role in building long-term wealth for individual investors. Take a look at the candidates below and what they're currently offering up.
|
Company |
Dividend Yield |
|---|---|
|
Cliffs Natural Resources |
5.2% |
|
Seagate Technology |
4.3% |
|
Huntsman |
3.1% |
|
ABB |
4.4% |
|
TAL International Group |
6.9% |
Source: Yahoo! Finance.
2. Opportunity for growth
Of course, no one can complain about dividends like these. And if the stock doesn't budge one bit for the next couple of years, reinvesting dividends will still provide an acceptable return for most risk-averse investors.
But that's not what we're looking for here; we're looking for dividend super-stocks. Therefore, we need stocks that have a chance for price appreciation as well. My metric of choice to measure if a company is undervalued is the P/E-to-growth ratio.
In the most basic sense, a PEG ratio below 1 indicates a stock is undervalued. A PEG ratio over 1 indicates that a stock is overvalued. The measure is by no means perfect, but it offers a good proxy for starting one's due diligence into undervalued dividend payers.
|
Company |
PEG Ratio |
|---|---|
| Cliffs Natural Resources | 0.82 |
| Seagate Technology | 0.09 |
| Huntsman | 0.34 |
| ABB | 0.94 |
| TAL International Group | 0.80 |
Source: Yahoo! Finance.
Though there's no guarantee that these stocks won't fall below where they are now, the relatively low PEG values that each of these stocks sport offer solace that there seems to be much more upside than downside moving forward.
3. Dividends that will stick around for a long time
Finally, we need to know that those beautiful dividend checks that arrive quarterly won't be disappearing anytime soon. One key way to check this is by looking at how much of a company's earnings is used to pay out dividends.
If a company pays more in dividends than it makes in earnings, those payouts obviously appear unsustainable. The lower the payout ratio, the better, as it indicates that there's both a lot of room for growth and a safety net to guarantee payouts if the macro climate turns south.
Take a look at how healthy all five of these stocks' dividends currently are.
|
Company |
Payout Ratio |
|---|---|
| Cliffs Natural Resources | 9% |
| Seagate Technology | 18% |
| Huntsman | 28% |
| ABB | 48% |
| TAL International Group | 64% |
Source: Yahoo! Finance.
Though TAL's payout may be higher than the rest of the group, all five of these stocks have the type of dividend safety that helps a dividend investor sleep well at night.
Don't stop now!
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