No team can rely solely on outside shooting to win the NCAA basketball tournament. One cold night from the floor, and the players will find themselves on the first bus back to campus.
To take the title, a team needs to get the ball inside.
After all, a layup is worth the same as a 15-foot jump shot. So why not try to make as many layups as you can?
Playing the percentages
Great centers can shoot 50% to 60% from the floor because they can get easy looks and high-percentage shots. How can investors do the same?
It's a pretty simple game plan: Total return is a function of dividend yield and share price appreciation.
But that's boring
Typically, dividends don't excite investors. When you compare 3% to 5% dividend yields to 20% to 25% growth rates, it's easy to dismiss investing for income.
Yet over the past five years, the S&P 500 has returned a total of 4%. Not 4% annual returns -- 4% absolute returns. You could have done much better by investing in some of the easy looks dividends provide:
|
Company |
Yield |
5-Year Dividend Growth |
5-Year Return* |
|---|---|---|---|
|
Cherokee |
6.2% |
28.0% |
343% |
|
UST |
5.6% |
4.6% |
35% |
|
Diageo |
3.4% |
7.1% |
50% |
|
LSI Industries |
3.1% |
12.3% |
48% |
|
RPM International |
3.5% |
4.0% |
103% |
|
Landauer |
3.9% |
4.0% |
99% |
*As of March 1, 2006.
These companies don't do anything flashy. Cherokee licenses brand names to retailers such as Target
While they may not be as sexy as technology companies, these firms generate lots of cash. And here's the best part: The more cash they generate, the more they return to shareholders.
The Foolish bottom line
Layup-type investments are simple and yet so often overlooked. Maybe that's why Fool dividend guru Mathew Emmert's recommendations have been beating the market for quite some time: More people are shooting three-pointers, and fewer are working the ball inside.
So while you're watching the frenzy that is March Madness, remember that teams that can get the ball to their big men inside stand a better chance of winning. And the same high-percentage shots that work in sports also work in investing. So take Mathew up on a great offer. He wants to give you a free 30-day guest pass to Motley Fool Income Investor, to see if his strategy can work for you.
For more slam-dunk investing insight, make a fast break to the Fool's Stock Madness 2006 tournament.
Fool editor David Meier does not own shares in any of the companies mentioned. Diageo and RPM International are Income Investor picks. The Motley Fool has a disclosure policy.
