As an investor, it doesn't pay to follow the crowd.

In this series, though, we highlight a possible exception -- the collective wisdom of our CAPS community. Read the next section if you're unfamiliar with our methodology. Skip it if you want to go straight to the results.

Why this crowd is different
Jumping into a stock because your rich neighbor did, or because you heard about it from your friend's uncle who used to work on Wall Street, or because CNBC has been talking about it nonstop is a recipe for disaster.

If there's one thing I've learned as a stock analyst, it's that any stock can be gussied up to sound like a world-beater. If there's a second thing I've learned, it's that being a smart person doesn't make you a good investor.

In the hands of a smart person with good communication skills, the never-were and never-will-be stocks sound like tickets to instant fortune. The ancient Greek philosophers made the distinction between rhetoric and knowledge. The former is convincing; the latter is true.

That's why we factor in track record in our Motley Fool CAPS community. We invite everyone to give stocks an outperform (akin to a "buy" call) or underperform rating (akin to a "sell" call) in CAPS. We then use those opinions to calculate a rating for each stock -- from one to five stars (five being the best). But -- and this is a big distinction -- we give more weight to the opinions of folks whose picks have performed well in the past.

The most popular retail dividend play
So, with that methodology as prelude, I present to you the top four and five-star-rated retail stocks that yield 2% or more that have garnered the most outperform ratings by CAPS members. I used a minimum market capitalization of $100 million and the proviso that must be listed on a major U.S. exchange. Remember, stocks are rated on a five-star scale by our CAPS community, so four and five star stocks are consensus outperforms.

Company Name

Market Capitalization (in millions)

P/E Ratio

 

Dividend Yield

CAPS Rating (out of 5)

Outperform Picks

American Eagle Outfitters (NYSE: AEO)

$2,550

19.8

3.4%

****

2,301

Walgreen (NYSE: WAG)

$26,947

13.3

2.5%

****

1,949

China Nepstar Chain Drugstore (NYSE: NPD)

$315

12.9

8.7%

*****

436

SUPERVALU (NYSE: SVU)

$2,109

6.1

3.5%

****

299

Village Super Market (Nasdaq: VLGEA)

$187

15.3

3.7%

*****

126

Ingles Markets (Nasdaq: IMKTA)

$204

13.3

4.2%

****

87

Delhaize Group (NYSE: DEG)

$6,852

8.1

2.1%

****

57

Source: Motley Fool CAPS. NM= not meaningful.

The numbers that pop out in this screen are grocer SUPERVALU's 6.1 trailing P/E ratio and China Nepstar Chain Drugstore's 8.7% dividend yield. Of course, sometimes the best investments aren't the first ones that pop out numerically. The most popular retailer dividend yielders are the less optically wowing American Eagle and Walgreen. Walgreen is one I've got on my "need-to-research-further" list.

Which is your favorite retail stock? Is it one of these or is it a more hidden gem? Make your thoughts known in CAPS by clicking here. Or just go there to do further research on one of these stocks.

Anand Chokkavelu owns shares of American Eagle Outfitters. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.