The New York Yankees of the '50s and the Chicago Bulls and Dallas Cowboys of the '90s have one crucial element in common: consistent excellence in their organizations and performance. That's a rare accomplishment, but if you think it could never occur in your portfolio, think again. Carefully chosen dividend-paying stocks could be your key to superstar returns.
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. Finding them is the mission of our Motley Fool Income Investor service.
Bank of Nova Scotia, for example, has beaten the S&P 500 by 19 points since June 2007, and it currently is rewarding investors with a 4.9% yield. Or consider France Telecom (NYSE: FTE ) , which has topped the S&P by 40 points since January 2006, atop a current 8.1% 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 the free Motley Fool CAPS community of 135,000 investors, we'll search for the best dividend-paying stocks around. Here are several dividend picks that have also earned high ratings from the community:
|
Company
|
Yield
|
CAPS Rating
(out of 5)
|
|
Chevron (NYSE: CVX )
|
3.9%
|
****
|
|
BHP Billiton (NYSE: BHP )
|
3.0%
|
****
|
|
NYSE Euronext (NYSE: NYX )
|
4.4%
|
*****
|
|
Diageo (NYSE: DEO )
|
3.9%
|
*****
|
|
Applied Materials (Nasdaq: AMAT )
|
2.2%
|
****
|
Sources: Capital IQ, a division of Standard & Poor's, Yahoo! Finance, and CAPS as of July 2.
Any one of these quality companies would add some dividend excellence to your portfolio, but let's take a closer look at why CAPS members think that NYSE Euronext is worth a hard look.
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, financial statements, and business stability.
There's really no way around the fact that NYSE doesn't have much of a dividend history. But then again, it doesn't have much of a history as a public company; it only came public back in 2006.
NYSE's financial statements aren't perfect, but they provide more comfort than an initial glance might suggest. Although the company reported a loss of more than $800 million over the past 12 months, the losses stemmed primarily from goodwill writedowns. Meanwhile, it still continued to produce cash flow well above what it needed for capital spending.
And while NYSE carries a significant amount of debt, it has its interest payments well covered and has more than $700 million in cash stashed away.
Business stability, though, is where I think NYSE has a particular edge. The New York Stock Exchange is one of the core assets of NYSE Euronext. I'm not blind to the competition that the NYSE has seen from folks like Nasdaq OMX (Nasdaq: NDAQ ) , but considering the kind of worldwide recognition that the NYSE has, not to mention that it's been doing business for more than 100 years, I have a feeling it will keep trucking well into the future.
What the bulls say
I've already given NYSE Euronext a thumbs-up in my CAPS portfolio, and I'm far from the only bull. Nearly 2,500 CAPS members have given the stock an outperform rating, versus just 83 who have rated it an underperformer.
In early April CAPS, All-Star TMFBreakerTAllan became one of the NYSE bulls, pitching:
NYSE. When markets go bad, the market still makes a fee. There has been a dearth of IPOs in the past few years and when the current recession ends, both NYSE and NASDAQ will explode with revenue. In the meantime, NYSE has the volume to support revenues and has a steady stream of additional income as ETFs become more and more prevalent on the markets. All that and a dividend yield over 4%.
Get into the action
You can check out who else has been bullish on these stocks, as well as 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 flash-in-the-pan Florida Marlins to the dependable New York Yankees. And if you hate the Yankees, it's probably because they're so darn good, so darn often.
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