The New York Yankees of the '50s and the Chicago Bulls and Dallas Cowboys of the '90s have one crucial element in common: consistent excellence in their organizations and performance. That's a rare accomplishment, but if you think it could never occur in your portfolio, think again. Carefully chosen dividend-paying stocks could be your key to superstar returns.
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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 is the mission of our Motley Fool Income Investor service.
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Identify new talent
With the help of Motley Fool CAPS, we'll search for the best dividend-paying stocks around. Here are several dividend picks that have also earned high ratings from the 140,000-member CAPS community:
|
Company |
Yield |
CAPS Rating
|
|---|---|---|
|
ExxonMobil |
2.3% |
**** |
|
Paychex |
4.0% |
**** |
|
Hasbro |
2.7% |
***** |
|
American Eagle Outfitters |
2.7% |
**** |
|
Exelon |
4.5% |
***** |
Source: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and CAPS as of Nov. 19.
Any of these quality companies would add some dividend pizzazz to your portfolio, but let's take a closer look at how Exelon stacks up.
Does my dividend have a glass jaw?
The last thing we want in a dividend-paying company is the risk that the company will fall off a cliff and have to pull back its dividend. This usually ends up being a double whammy because not only do you lose your dividend payout, but many of the dividend-loving investors who own the stock will run for the hills, causing the stock price to fall.
With that in mind, there are three places that I immediately tune into when kicking the tires of a dividend payer -- dividend history, financial statements, and business stability.
When it comes to electric utilities, we can typically expect to find similarities such as a high debt load, heavy capital spending, a relatively stable business, and a good history of dividend payments. With Exelon, we find all of the above.
Digging into Exelon's financials, we see that although the company does have nearly $13 billion in debt and a debt-to-equity ratio of just more than 100%, it has its interest payments well covered. It's also notable that the company typically produces enough cash to pay for both its capital expenditures and dividends from operating cash flow.
We could gripe a bit about Exelon's dividend history, since it's had dividend cuts in its distant past, and, as recently as 2006, years where it didn't raise its dividend payout. However, if the company continues to grow its payout at its average rate, investors should be well rewarded at today's price.
What the bulls say
More than 800 members of the CAPS community have rated Exelon's stock an outperformer, and the stock carries a perfect five-star rating. Many of the recent bulls seem to have been attracted by the fact that utilities have been relatively out-of-favor as the rest of the market has charged ahead like kids who ate too much candy corn.
All-Star Trimalerus has been bullish on Exelon since April, writing:
Exelon cutting greenhouse gas emissions puts this company in a good position for when a carbon cap & trade system is implemented in the US. Stands to benefit from growth of the energy sector ... Long-term value pick.
Get into the action
You can check out who else has been bullish on these top-rated dividend payers, as well as chime in with your own thoughts by heading over to CAPS.
Dividend stocks could help you transform your portfolio from the flash-in-the-pan Florida Marlins into the dependable New York Yankees. And if you hate the Yankees, it's probably because they're so darn good, so darn often.
Not satisfied with these yields? Fellow Fool Adam Wiederman serves up what he thinks are the best yields for the next 10 years.
