This article is part of our Rising Star Portfolios series.
Dividends deserve a prominent place in your investment strategy. Companies that pay dividends send a public signal that they're putting investors first. What's more, consistent dividend payments usually reflect robust operations. Over time, a portfolio composed of a healthy dose of dividend stocks can boost returns significantly -- and the longer you hold them, the more compounding they do.
With that in mind, I ran a screen for companies with market caps greater than $3 billion, trading on major U.S. exchanges, with inside ownership greater than 1%, returns on equity of at least 10%, and a dividend yield of 3% or more. Five companies caught my eye, and two definitely make my watchlist:
|
Company |
Return on Equity |
Dividend Yield |
|---|---|---|
|
Paychex |
34.7% | 3.7% |
|
Genuine Parts |
16.9% | 3.1% |
|
Fidelity Nat. Financial |
11.1% | 3.4% |
|
Leggett & Platt |
11.8% | 4.7% |
|
Kellogg |
56% | 3.1% |
Source: Capital IQ, a division of Standard & Poor's.
Beyond Frosted Flakes
Most investors already have exposure to Kellogg one way or another, considering the company's stable of popular breakfast brands. But Kellogg is more than just cereal. With brands like Keebler, Cheez-It (a personal favorite), Kashi, and Famous Amos, Kellogg products manage to find their way into most households. The company boasts a reach of more than 1,500 products in more than 180 countries.
This kind of presence and brand power gives Kellogg a durable position in a competitive market. The company has been around for more than a century, and I imagine it'll stick around as long as it wants. If you have any doubt about the dividend, note that in October 2010, management declared its 344th dividend since payouts began in 1925. That's not too shabby at all. Today the company trades at a reasonable 16 times earnings, a bit lower than its 10-year average of 19.5.
Part of the process
Surprisingly enough, Genuine Parts' specialty is parts -- from automotive and industrial replacement components to office and electrical materials. Founded in 1928, the company has been around for a while, most notably in the form of NAPA Auto Parts. Between 58 NAPA distribution centers in the U.S., and a leading presence in Canada and Mexico, auto parts make up more than half of the company's total sales.
The other three segments complement the company's diversity nicely. Industrial supplier Motion Industries counts for almost 30%, office supplier S.P. Richards Co. makes up about 16%, and electrical supplier EIS contributes a little more than 3%. While the business is more subject to economic conditions (read: cyclical), the higher P/E ratio can often imply lower earnings, not necessarily an overvalued stock. At 18 times earnings today, the stock looks interesting.
So can we put 'em on the list?
Now, I'm not saying that these are automatic buys by any means. But they do look like potential candidates for further research. I like Kellogg's massive reach and consumer appeal, and Genuine's diversity makes it an appealing jack of many trades. Screens like the one above are one great way to get companies on my radar, and I'll keep on searching for more great ideas to take my Motley portfolio to new heights. You can follow along, too -- just swing on by my discussion board and have a chat. I'm also on Twitter.
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