Contrarian investors should utilize times like this to differentiate between stocks that are dropping for fundamentally sound reasons and those stocks that are simply being dragged down because of general market concerns. Sure, there's plenty to worry about -- gigantic federal deficits, sovereign debt problems in Europe, an economic slowdown in China. But let's not forget that in the midst of all of this volatility lies the prospect to grab some great companies at dirt cheap prices.
In particular, I'm a huge fan of dividend stocks. Renowned professor Jeremy Siegel has illustrated that from 1957 to 2003, when reinvesting dividends, the S&P's 100 highest-yielding stocks outperformed the market by an average of 3 percentage points. Over a long period of time, 3 percentage points can really add up. So if you can find dividend stocks trading cheaply and can separate the good from the bad, you may have found yourself a real winner.
In this regular series, I run a screen for dividend stocks that have gotten crushed in the past four weeks, in addition to companies that are trading at low P/Es. Below are the top seven dividend-paying basic materials stocks that have gotten beaten down the most, in order of their dividend yield, additionally rated by our own 180,000-strong CAPS community.
|
Company |
Dividend Yield |
4-Week Price Change |
P/E Ratio |
CAPS Rating |
|---|---|---|---|---|
|
Terra Nitrogen |
9.9% | (9.7%) | 11.4 | ***** |
|
Encore Energy Partners |
9.4% | (4.2%) | 10.3 | **** |
|
Southern Copper |
9% | (1.5%) | 11.5 | **** |
|
Vanguard Natural Resources |
8.7% | (6.8%) | 12.0 | **** |
|
Penn Virginia Resource Partners |
8.2% | (6.3%) | 17.0 | **** |
|
Legacy Reserves |
8.1% | (9.6%) | 10.6 | **** |
|
Enerplus |
8.1% | (9%) | 11.3 | **** |
Source: Motley Fool CAPS. Data current as of Dec. 1. Price change from Nov. 4 to Nov. 30.
A Foolish final thought
This could be a great time to pick up some heavy dividend payers at a great price, but first I'd make sure that their dividends are sustainable. For instance, Terra Nitrogen and Southern Copper both have payout ratios above 80%, which could definitely be a red flag. It's up to you to check out each individual company to make sure its dividends are legit and that there is still room for growth. With the stock market acting as volatile as it has been, and with investors looking for different ways to generate income, dividend-paying stocks such as these could have the potential to give you exactly what you're looking for.
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