A little over a month ago, I wrote about rebuilding my retirement portfolio from scratch. I could have simply left my funds in my former employer's account, but without the company matching contribution and some pretty poor mutual funds to choose from, I thought it would be better to build a portfolio of long-term investments from the bottom up. This means setting up a rollover IRA with a broker, which is in progress.
In that article, I said I would be building this portfolio with a base -- anywhere from 50% to 80% -- of dividend-paying investments. This is the Motley Fool Income Investor strategy, and it's the one I'm most comfortable with for the lion's share of my portfolio, because of the solid long-term performance of well-chosen dividend-paying equities. This means that, at today's prices, I'm more likely to consider a company such as Costco (NASDAQ:COST) over the likes of Google (NASDAQ:GOOG).
After giving it some more thought, I'm ready to declare the first purchase for my IRA, which, of course, will comply fully with the Fool's trading rules. But before we get to the purchase, I'd like to review a handful of companies that I considered but ultimately decided weren't yet worthy to add to my portfolio.
Surface-level value
First up was PDI (NASDAQ:PDII), a provider of sales and marketing support to biopharmaceuticals and medical device companies. PDI didn't make the list as a dividend payer -- it is, however, a deep-value selection, with an enterprise value-to-free cash flow ratio below five. This valuation is warranted at the moment because the business is losing customers and shrinking. That said, since the company boasts a large cash balance and high insider ownership, I'll continue to keep an eye on it for signs that the decline is leveling out.
Big dividends in small places
I also recently took a look at rural telecoms with serious dividends. There are many interesting players in the industry and due to state regulations and different revenue sources, each is a unique case that deserves individual consideration. After studying three players, I'm most intrigued by Iowa Telecommunications Services (NYSE:IWA), but I've decided to wait and see how the management team handles its first year or so as a public company. Since the business of a rural telecom is fairly predictable, I expect no big surprises, but I've still decided to hold off.
Intriguing possibility
In my search for companies to fill out my portfolio, I've intentionally looked at smaller companies that pay dividends but have the opportunity for a fair amount of growth ahead. A very interesting company that fits the mold is Nam Tai Electronics (NYSE:NTE). Nam Tai is a contract manufacturer in the electronics industry whose entire manufacturing operations are located in China. The company has a history of strong growth and at the moment pays a rather substantial dividend of about 5.6%.
Its managers also own approximately 40% of Nam Tai. In addition, management has a history of upping the dividend and occasionally paying special dividends. Unfortunately, the company has a rather complicated ownership structure with its operating subsidiaries, and this year's dividend payment appears to be a bit of a stretch in relation to its free cash flow. That said, Nam Tai is experiencing a period of rapid growth.
First purchase
After all the research on various companies, in the end I've decided to turn to an Income Investor selection as the first pick for my portfolio. That company is none other than ketchup and sauce purveyor Heinz (NYSE:HNZ). I expect Heinz to continue doing what it has done for the last couple of years, which is to pay down its debt and focus on the consistent growth of its core business. Of course, I also expect it to keep raising its dividend and provide me with additional funds to invest for years to come.
Consider a 30-day free trial to Motley Fool Income Investor to learn about solid dividend-paying companies. There's no obligation to buy if you aren't completely happy.
Nathan Parmelee loves Heinz ketchup on his burgers and never got into the whole catsup thing. He beneficially owns shares of Heinz and Costco, but has no direct ownership in either company's shares. He has no financial interest in any other companies mentioned. You can view his profile here. The Motley Fool has an ironclad disclosure policy.
