Ruth, Jordan, Montana. You don't have to be a sports fan to recognize those names and there's a very good reason for that. All three of these athletes made magic happen whenever they competed. Even more importantly, when the chips were down, you could still count on these guys to deliver.
In times of economic turmoil, wouldn't it be great to have a performer like that in your portfolio? Well, high quality dividend payers can be just that kind of day-in and day-out all-star that you're looking for.
Build the next investing dynasty
These long-haul outperformers can help you build your fortune, as studies from investing gurus such as Jeremy Siegel have shown time and time again. At the same time, they can provide a solid defense against crazy market conditions. Finding them is our Motley Fool Income Investor service's mission.
Tupperware Brands (NYSE: TUP ) , for example, has beaten the S&P 500 by 36 points since October 2005, and it currently is rewarding investors with a 3.8% yield. Or consider Southern Company (NYSE: SO ) , which has topped the S&P by 23 points since November 2003, atop a current 5.9% yield. While these stocks happen to be Income Investor recommendations, you don't need to be a subscriber to get these great gains.
Identify new talent
With the help of Motley Fool CAPS, we'll search for the best dividend-paying stocks around. Here are several dividend picks that have also earned high ratings from the 130,000-plus members of our CAPS community:
|
Company
|
Yield
|
CAPS Rating (max 5)
|
|
AT&T (NYSE: T )
|
6.4%
|
****
|
|
Duke Energy (NYSE: DUK )
|
6.4%
|
*****
|
|
Bristol-Myers Squibb (NYSE: BMY )
|
6.1%
|
****
|
|
United Technologies (NYSE: UTX )
|
3.0%
|
****
|
|
Tesoro (NYSE: TSO )
|
2.5%
|
****
|
Source: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and CAPS as of May 14. All yields listed are trailing and may not reflect recent corporate actions.
If you like what you see, but want more, you can run this screen for yourself with CAPS' handy screener. While these are not formal recommendations, they're a great place to kick off further research and potentially add some dividend excellence to your portfolio. In fact, I'll even kick you off with some thoughts on Duke Energy.
Does my dividend have a glass jaw?
The last thing we want in a dividend-paying company is the risk that the company will fall off a cliff and have to pull back its dividend. This usually ends up being a double whammy because not only do you lose your dividend payout, but many of the dividend-loving investors who own the stock will run for the hills, causing the stock price to fall.
With that in mind, there are three places that I immediately tune into when kicking the tires of a dividend payer -- dividend history, balance sheet strength, and cash flow.
Duke Energy doesn't have the best record when it comes to consistently raising dividends, though over the past decade, its foray into power trading could be largely blamed for this. What it has lacked in reliable payout hikes, though, it somewhat makes up for by consistently ensuring that investors do get paid, and that's definitely a positive.
On the cash flow side, Duke hasn't generated enough free cash flow (operating cash flow less capital expenditures) to cover its dividend, so it has been raising new debt to make ends meet. Since the company has some significant capital spending programs on the horizon, this suboptimal trend may continue.
Duke's balance sheet isn't nearly as worrisome. Though $15 billion in debt sounds like a huge amount, the company's debt-to-equity ratio is 0.72 -- not high at all for a dependable energy company. And if we take a peek at Duke's income statement, we'll see a very comfortable interest coverage ratio.
What the bulls say
Duke is a clear favorite among CAPS members, with more than 1,600 outperform ratings versus just 73 underperforms. And though the S&P's mad dash over the past few months has left Duke's stock in the dust, Duke has outperformed the index over the past two years.
One of CAPS' top-performing members, TMFDeej, rang the bullish bell on Duke back in April, saying:
Duke Energy (DUK) - Anyone who reads my blog knows that I like electric utilities. Duke Energy is a power company that is based in the Southeastern U.S. It has operations there, in the Midwest, and even in Latin America.
I don't like the fact that Duke has a ton of coal plants, but at least it has nuclear assets as well. One major plus about the company is it has a reasonable debt load for a utility, only 41% of its total capital. Plus, here's my favorite part...Duke pays a solid 6.6% dividend. Any cap and trade or other sort of carbon tax would likely be a net negative for DUK, but at 0.9 times book value and 11 times earnings the company is so cheap at this point that it's worth a look.
There's a thumbs-up for Duke Energy in my CAPS portfolio as well. However, I will be watching the company's cash flow closely, and if it continues to lack the free cash flow to cover its dividend, it may find its way onto my portfolio chopping block.
Get into the action
You can check out who else has been bullish on these stocks, and chime in with your own thoughts, by heading over to CAPS. You may also want to check out a few of the other top-rated dividend payers above while you're there.
Dividend stocks could help you transform your portfolio from the Bad News Bears to the Dream Team. And really, could you argue with having the market's equivalents of Michael Jordan, Magic Johnson, and Sir Charles Barkley helping your portfolio chalk up wins?
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