The Smartest Approach to Dividend Investing

The following video is part of our "Motley Fool Conversations" series, in which analyst John Reeves and advisor David Meier discuss topics across the investing world.

Dividends are an important part of stock returns. But investors should look for companies that can generate excellent total returns. Total return is the combination of dividend yield plus dividend growth plus share repurchases. Stocks with high yields can be attractive, but do carry risk. Two that come to mind are American Capital Mortgage Investment and Chimera Investment. Both have yields over 13%, but an environment where interest rate spreads are tight can be tough on mortgage REITS. Instead, John and David prefer companies like Waste Management and Altria. A total return approach focuses on income, capital appreciation, and management taking care of shareholders. John and David own ExxonMobil because of its total return potential. It’s a more complete strategy than yield alone, and can help you earn better returns.


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David Meier has no positions in the stocks mentioned above. John Reeves has no positions in the stocks mentioned above. The Motley Fool owns shares of Waste Management and ExxonMobil. Motley Fool newsletter services recommend Waste Management. 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.

Read/Post Comments (3) | Recommend This Article (4)

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  • Report this Comment On September 20, 2012, at 11:49 PM, midnightmoney wrote:

    Mr. Reeves,

    Please correct me on waste management, but I just don't get what makes this company the super sagacious investment it's touted to be. They have enough debt to fill a landfill and their payout ratio is quite high, They have never split the stock, which came public in 1991 at 17 and change per share. 21 years later it's trading at 32 bucks and change, so less than 100% more. For several years they paid no dividend, for several more they paid a penny out, and irregularly at that if yahoo finance is to be believed. Finally in 2004 they got serious and put some protein in their payout, and it's been going up since--the payout, at any rate; the actual price of the stock continues to creep at a slothlike pace. Since they raised the dividend to 18 cents per share per quarter in 2004, and over the subsequent 8 years, the stock price has gone from 27 dollars to today's price of 32 and change. Is that actually a good investment? What am I missing here?

  • Report this Comment On September 22, 2012, at 10:19 PM, neamakri wrote:

    Okay, don't buy WM.

    However, Altria (MO) looks very good. At least for the next couple of years they have profit, pricing power, and good dividends.

    Here's a short story: my son was in the hospital 4 days for a hip replacement. No smoking allowed. The FIRST THING he did back home was to light up. I purchased some tobacco stock... and keep collecting the dividends.

  • Report this Comment On September 23, 2012, at 1:23 PM, DividendDude wrote:

    You're kidding, right? Over the past year MTGE went from $18 to $25 per share - - a 44% increase in capital - - PLUS a 20% dividend.

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Related Tickers

10/27/2016 4:00 PM
CIM $15.50 Down -0.24 -1.52%
Chimera Investment CAPS Rating: ***
MO $64.43 Down -0.09 -0.14%
Altria Group CAPS Rating: ****
MTGE $17.08 Down -0.18 -1.01%
American Capital M… CAPS Rating: ***
WM $63.36 Down -0.61 -0.95%
Waste Management CAPS Rating: *****
XOM $86.92 Down -0.17 -0.20%
ExxonMobil CAPS Rating: ****