Right Stock, Wrong Price

If you purchased shares of high-quality companies a few years back and are still sitting on losses today, believe me, I feel your pain. If you're like many of my readers, you probably bought those shares back in 2000 during the market's peak.

So what went wrong? Well, most of my readers' mistake wasn't picking the wrong company, and it wasn't timing. In most cases, they simply paid too much.

It's all in the valuation
That's valuation for you, and unfortunately, overvaluing a company is an all-too-common mistake. Even detailed valuation analyses aren't foolproof, especially if we aren't extra-careful (read: conservative) with our growth estimates.

Grossly overestimating growth can ruin returns for even the very best of companies for a decade or more. You can find examples of these market "darlings" from any bull market. In the 60s and 70s, it was the nifty 50. At times during the 80s, biotechs were all the rage. And, of course, the 90s had the Internet sweethearts.

Some of that Internet love persists still today. Companies such as Google (NASDAQ:GOOG) and Baidu.com (NASDAQ:BIDU) are quality businesses, and they have products that keep consumers coming back. But, as with the stocks from those earlier decades, I fear we expect too much from these companies -- and that investors may be disappointed with their long-term returns.

Five beaten-up companies to focus on now
But there is a bright side to all of this dreariness. Some of the companies that have disappointed investors for years are now priced quite reasonably and still have bright futures. These companies also carry attractive yields and should grow their dividends as earnings increase. Five of these companies are highlighted in the table below, and two of the five come specifically from readers who have expressed frustration with the companies' returns over the past five years.

With the exception of Paychex, all of these companies have provided lackluster returns over the past six years, and for investors who purchased Paychex a little later in 2000, the results are just as frustrating as Wal-Mart's. But all of these companies were high-quality businesses in 2000, and they remain so today. For those with positive returns, dividends are playing an important role, and all of these companies' performances would have been worse if it weren't for the increasing dividends they've paid over the years. But today, each of these companies is valued reasonably, and three of them carry dividend yields of 2.7% or higher, which will help to offset any short-term flatness in share price.

Foolish final thoughts
Nailing a high-quality business and then completely whiffing on its valuation is among the most frustrating experiences in investing. You end up watching the business grow its sales and earnings while its share price sits flat -- or even declines slightly.

Fortunately, there is a way to remedy the situation: Purchase more shares as the price falls. I know that can be very difficult to do, because, well, the price could keep falling. But if those high-quality businesses pay dividends, reinvesting those dividends can help you do just that -- grow your position as share prices fall. Of course, it's also possible to avoid all this unpleasantness by waiting for reasonable prices.

To learn more about dividend-paying stocks, and how to buy high-quality companies at reasonable prices, take a free, 30-day trial to Motley Fool Income Investor. By focusing on dividend-paying companies such as GlaxoSmithKline, the service is beating the market by six percentage points overall. Click here to learn more.

At the time of publication, Nathan Parmelee had no financial interest in any of the companies mentioned. Wal-Mart is a Motley Fool Inside Value selection. The Fool has an ironclad disclosure policy.