In gambling, as in investing, a statistical advantage is everything -- and the casino usually has it. But not always: Counting cards, if done correctly, gives a blackjack gambler a 1% advantage. Sounds small, but it's enough to give a precious few a full-time profession.
Now imagine that you could get a 3% advantage in investing.
Then you could be a full-time investor ...
Few folks seriously consider becoming full-time investors, but in a way, that's what you do in retirement. And even if clocking out isn't on your radar at the moment (it should be), investing is at least a side job for you, a way to earn a little more money. Otherwise, you wouldn't be reading this article.
Now, that 3% advantage sounds too good to be true, doesn't it? It isn't. Wharton professor Jeremy Siegel demonstrated that high-yielding, dividend-paying stocks have that very advantage over the rest of the market. This study -- one of many he's cranked out over the years -- showed specifically that the S&P's 100 highest-yielding stocks outperformed the overall index by 3 percentage points annually from 1957 to 2003. In the world of finance, that's huge!
So what are three dividend payers that could help you start beating the market? Here you go:
No. 1
First up is Citizens Communications, a telephone company that stacks its own odds by operating in rural markets, which are less competitive. Its whopping 6.7% dividend yield is almost head and shoulders above industry peers such as BCE (NYSE:BCE) and Centurytel (NYSE:CTL). In fact, Citizens earned high enough marks to be recommended in our Motley Fool Income Investor service.
No. 2
UST is one of the biggest makers of smokeless tobacco products and premium wines. And while the 3.8% yield and price-to-earnings ratio of 19 don't necessarily look great compared to peers such as Reynolds American (NYSE:RAI) or Imperial Tobacco (NYSE:ITY) and the growth won't match something like Constellation Brands (NYSE:STZ) (which doesn't pay a dividend), brands like Skoal and Copenhagen keep the company's operations humming along. The seasoned management team should help the company fend off competition and increase profit margins in the coming year.
No. 3
Valero LP is a master limited partnership (MLP) that operates more than 9,300 miles of pipelines from Texas to Minnesota. Spun off from refiner Valero Energy in 2001, the company pays a nice 6.4% yield. Moreover, its asset base is diverse and its profit margins are excellent.
The Foolish conclusion
I'll be clear in stating that I'm not necessarily recommending these stocks as "buys." I'm not calling them unworthy, either. Still, waters that statistically turn up strong performers are a great starting point.
Can you get a little more specific than picking three stocks, advantaged though they may be? You bet. The Fool's own dividend newsletter fishes in high-dividend waters. It's paying off -- our Income Investor newsletter is beating the S&P 500 by 10 percentage points since its inception. Click here for a guest pass to check it out.
This article was originally published on Oct. 18, 2006. It has been updated.
James Early owns no stocks mentioned in this article. Citizens Communications is an Income Investor pick. The Motley Fool has a disclosure policy.
