When we think of dividend stocks, we tend to think of large, stable companies such as IBM
But IBM, Dupont, and ExxonMobil aren't among the top five or 10 best dividend payers of the past decade (as measured by total return). In fact, the largest company in the top 20 is $9.7 billion pipeline firm Kinder Morgan Energy Partners -- and it's No. 14. The No. 1 dividend payer is a $2.3 billion office real estate investment trust (REIT) -- Corporate Office Properties Trust.
Five surprising returns
To make this list, the companies all had to be paying dividends in 1996 and 2006, and they had to have a current yield greater than 1%. Without further ado, here are the top five.
|
Company |
Total Return |
|---|---|
|
Corporate Office Properties Trust |
1,961% |
|
New England Realty Associates |
1,716% |
|
MDC Holdings |
1,469% |
|
Cherokee |
1,423% |
|
Courier |
1,326% |
Another company, A/S Steamship Company TORM, has returned 1,652%, but it's only been trading on the Nasdaq for about five years, so it didn't make the cut. Still, the returns for this Danish tanker producer have been impressive.
Of the companies that cracked the top five, only two, MDC Holdings and Corporate Office Properties Trust, currently have a market cap of more than $2 billion. Given the debt both firms employ, these two actually clock in with enterprise values of more than $3 billion.
As you may have already guessed, that means that all of these companies were small caps (meaning they had a market cap of less than $1 billion) a decade ago. But the dividends they paid didn't hamper their growth, and they rewarded investors with payouts even when the market was volatile.
Are any of these companies worth an investment now? The list above includes one trust (a REIT) and one real estate holding company, and since trusts and real estate have seen quite a run-up in the past five years, I'd be cautious when considering those companies for investment.
That leaves us with MDC Holdings, Courier, and Cherokee. I must admit that I find Cherokee's 7% yield intriguing, though I do worry about it being reliant on one customer, Target. MDC Holdings, like many homebuilders, saw its shares nearly cut in half earlier this year. The company also trades at a P/E of 6 and a price-to-book ratio of just more than 1. The housing market may be in for more of a fall, and the company has already seen its shares increase about 40% from its low, but those multiples are a combination worthy of further research -- particularly when the company sports a 1.8% dividend yield.
The dividend wrap-up
It's not a complete surprise that the best returns among dividend payers would come from smaller companies. In fact, it's precisely what I expected, since it's easier for smaller businesses to achieve high growth rates for periods of five to 10 years.
To learn more about small (and large) dividend-paying stocks trading at reasonable prices, consider a free 30-day trial to Motley Fool Income Investor. Focusing on dividend-paying companies such as Diageo
This article was originally published on Aug. 11, 2006. It has been updated.
At the time of publication, Nathan Parmelee had no financial interest in any of the companies mentioned. MDC Holdings is a Motley Fool Hidden Gems selection. DuPont and Diageo are Income Investor recommendations. The Fool has a disclosure policy.
