Quiz time, sports fans: What did the New York Yankees of the '50s and the Chicago Bulls and Dallas Cowboys of the '90s have in common? (And exactly how can this help you with your portfolio?)
It wasn't just that they had some of the best individual players of the time -- Yogi Berra, Michael Jordan, and Emmitt Smith respectively -- although that certainly helped. And it wasn't just that they were able to bring home world championship trophies on a regular basis. It was simply that their organizations and performances were consistently excellent.
Consistent excellence is rare anywhere, but imagine seeing it in your portfolio. Impossible? No way! Because that's what carefully chosen dividend-paying stocks can offer.
Build the next investing dynasty
Finding these long-haul outperformers can help you build your fortune, as studies from investing gurus such as Jeremy Siegel have shown time and time again. Finding them for you is precisely what we do at our Motley Fool Income Investor service.
California Water Services (NYSE:CWT), for example, is up 63% since October 2003, and it is rewarding investors with a 2.6% yield. Then there's Southern Company (NYSE:SO), which has returned 41% since December 2003 on top of a current 4.4% yield. And while these stocks happen to be Income Investor recommendations, you don't need to be a subscriber to get these great gains.
Identify new talent
With that last thought in mind, I'd like to introduce you to our community intelligence database, Motley Fool CAPS. There, savvy investors help one another identify stocks that can create consistent and substantial growth for any type of investor. That means whether you're a Buffett-esque value investor or a chart-watching technical trader, you are welcome to strut your stuff. And, just as in professional sports, the cream inevitably rises to (and stays at) the top.
So what are the best dividend-paying stocks around, according to CAPS? Here are a few dividend picks with five-star ratings:
|
Company |
Yield |
|---|---|
|
Cherokee (NASDAQ:CHKE) |
7.4% |
|
Quality Systems (NASDAQ:QSII) |
2.3% |
|
Hercules Technology Growth Capital (NASDAQ:HTGC) |
9.1% |
|
Patriot Capital Funding (NASDAQ:PCAP) |
9.3% |
|
Otter Tail (NASDAQ:OTTR) |
3.3% |
Stake your claim
I encourage you to join CAPS to learn more about why investors are so bullish on these companies, and perhaps to add your own thoughts to the system. I'll get you started with some thoughts about one company here that may be worth checking out: Quality Systems.
Stock Advisor subscribers who bought shares of Quality Systems when it was first recommended back in March of 2003 are sitting on a massive 590% gain. Those who held off and then bought when the stock was rerecommended the following month are up an even sweeter 685%. Good for them, right?
The obvious question now is: With such a great run-up over the past few years, is the stock still a good buy?
Let's look at the facts. The company's business is developing and selling software to help make the U.S. health-care system more efficient. The company has grown revenue well in excess of 20% per year for each of its fiscal years (ending in March) from 2003-2007. It has strong profit margins that have been improving over that same period -- for 2007 its EBIT margin was 35%. Also in 2007, it produced a whopping 42% return on its total capital.
And, oh yeah, you get to collect a 2.5% dividend while you watch the company grow.
Trading at a bit over 30 times its fiscal 2008 projected earnings, this is not a cheap stock. However, given the magnitude of the technological changes that still need to happen in the U.S. health-care system, there should be plenty of runway left for the company.
On CAPS, the stock has some good support from Wall Street. Jefferies and Stifel Nicolaus, two highly ranked Wall Street firms, have both given the stock an outperform rating. However, Jim Cramer, also tracked on CAPS, has put his thumb down on the stock -- but give him a few days and maybe he'll change his mind.
You can check out more of what others have to say about Quality Systems, as well as chime in with your own thoughts, by heading over to CAPS. You may also want to check out a few of the other top-rated dividend payers above while you're there.
And looping back around to conclude my (very) extended sports metaphor, allow me to suggest that dividend stocks will help you turn your portfolio into the dependable New York Yankees, rather than the flash-in-the-pan Florida Marlins. And if you hate the Yankees, it's probably because they're so darn good, so darn often.
More CAPS coverage:
Yankees fan and Fool contributor Matt Koppenheffer hopes the Yanks can continue (regain?) their legendary excellence, and has his fingers crossed that the Cowboys never will get back to the top again. He does not own shares of any of the companies mentioned. Otter Tail is a Motley Fool Hidden Gems recommendation. The Fool's disclosure policy is a true investing dynasty.
