Sports nuts love numbers. While most of us were enjoying the raw spectacle of the NCAA basketball tourney, another crowd was looking at things on a much different level. The real hoops nuts -- not to mention the betting crowd -- were watching the matchups closely to see how stats translated into odds. Now that baseball's back in swing, the same number-crunchers will have even more data to sift through.
Anything can happen in a single game, but over the course of a season, the numbers that teams and players pile up amass a reasonable amount of predictive power regarding their future performance -- at least that's the hope of all those oddsmakers and betters out there.
Field of dreams on the trading floor
Luckily for those of us who do our betting in the stock market, the long-term performance of cash-producing companies is well established. If you don't believe me, take the word of Wharton finance professor Jeremy Siegel, who's shown that investing in solid dividend-paying companies beats the market with lower risk.
His research demonstrated that Altria, with a dividend-adjusted annual return of 19.75%, was the best of the original S&P 500. It outperformed legions of hot-and-cold glamour stocks of its time, like IBM or Eastman Kodak. Boring companies like Wrigley and H.J. Heinz returned better than 14.5% per year for nearly half a century -- beating the benchmark S&P's 10.9% annual gain -- thanks largely to the power of reinvested dividends in stable, cash-producing companies.
If you want to make smart bets on the future, I'd say these are clearly some numbers worth playing. I hold plenty of these in my own portfolio -- companies like UST (NYSE:UST), which pays me more than 5% these days, and small brand licensor Cherokee (NASDAQ:CHKE), which has an even better yield. One of the reasons I hold more modest dividend payers such as 3M (NYSE:MMM), American Eagle Outfitters (NASDAQ:AEOS), and Microsoft (NASDAQ:MSFT) is that their strong cash-flow generation combined with their growth potential will, I believe, keep rewarding me with ever larger piles of cold, hard greenbacks -- and that's on top of the nice capital gains I've already realized by grabbing shares when they were tossed into the Street's budget bin.
Better numbers to bet on
I'm not the only one around here who's high on these dividend kings. In fact, my colleague Mathew Emmert devotes his Motley Fool Income Investor newsletter to what he's described as the "predictive power of dividends." His point's not too different from what we've already discussed: Not only do dividends pay you cash up front, but they also help you identify superior companies that are more likely to reward shareholders for the long term.
And like the stalwarts of old, many of Mathew's picks are decidedly out of favor with the market, which is just fine with those of us who follow the newsletter (myself included).
A couple of examples: Heinz, already a long-term market beater with major market share, hasn't exactly excited the Street lately. But it continues to show moderate growth and yields a decent 3% dividend. The longer this recommendation stays undervalued, the more shares those dividends will buy you.
If you like thicker wads of cash, look at some of the telecom recommendations. ChungwaTelecom (NYSE:CHT), to name just one, yields more than 7%. By my estimate, the shares look like they're worth $25 a pop, giving them a nice 20% margin of safety today, in addition to that cash payout.
Will they get there? Hey, as far as I'm concerned, they can take their time doing it. I wouldn't be a bit surprised to see that dividend yield alone beat the market's average this year and next. And the longer I can roll that yield back into more shares, the better my eventual returns will be. By the way, there's at least one more overseas telecom on Mathew's list selling at a 30% discount to my nearly-no-growth estimates, and it also sports a tasty yield.
If these look like the kind of numbers you'd like to play, a free one-month ticket to Motley Fool Income Investor will let you scan all the selections and dig into the numbers, so that you can decide for yourself who the big winners will be.
This article originally ran on March 16. It has been updated.
Seth Jayson loves a cheap stock that throws cash back in his lap. At the time of publication, he had shares of Chungwa, Microsoft, 3M, UST, Cherokee, and American Eagle Outfitters but had no positions in any other firm mentioned. View his stock holdings and Fool profile here . Chungwa and Heinz are Income Investor recommendations. 3M and Microsoft are Motley Fool Inside Value recommendations. Fool rules arehere.
