October 5, 2012
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.
There’s so much focus on high-yield stocks, but that’s not where the big returns have come from. No, the big returns have come from the dividend sweet spot. Looking at the returns of the stocks in the S&P 500, the stocks with dividend yields between 1.5% and 2.4% have delivered the highest returns. The dividend sweet spot is the best combination of income and capital appreciation. Some examples include: Home Depot, up 44% year-to-date, with a 1.9% yield; Wal-Mart, up 24%, with a 2.2% yield; and Coca-Cola Enterprises, up 23%, with a 2.0% yield. The companies in the dividend sweet spot that John and David find most attractive today are Target and Qualcomm. Both companies have a considerable amount of growth ahead of them, so capital will flow to investments in that growth, as well as back to shareholders in the form of increasing dividends.
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