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The New York Yankees of the 1950s and the Chicago Bulls and Dallas Cowboys of the 1990s had 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.
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.
An investor who in October 2003 bought shares of Health Care REIT (HCN, news, msgs), an investment trust that seeks opportunities in senior housing and other health-related properties, would have nearly doubled his money, with dividends representing more than one-quarter of the gains.
- MSN CAPS: Collective wisdom at work
With the help of MSN CAPS, we'll evaluate some compelling dividend-paying stocks. Here are several dividend payers that have also earned high ratings from the 115,000-plus CAPS community:
| Company | Sector | Dividend yield | YTD return | CAPS rating |
|---|---|---|---|---|
Asset management | 19.9% | -36% | **** | |
Oil and natural-gas properties | 16.8% | -3% | ***** | |
Aluminum | 3.7% | -60% | ***** | |
Copper | 9.7% | -33% | ***** | |
Wireless communications | 2.5% | -33% | **** |
Any one of these high-quality companies would add some dividend excellence to your portfolio, but I thought I'd kick off further research with a closer look at American Capital (ACAS, news, msgs).
Go ahead and ask. I know you want to: "Is that 19.9% dividend yield for American Capital a typo?" Nope. And furthermore, it's not some backward-looking, one-time dividend payout that won't be repeated. On Aug. 5, when American Capital reported earnings, the alternative-asset manager also declared a fat $1.05 quarterly dividend and forecast $4.19 in total dividends per share for 2008.
Efficient-market buffs would say there's a huge amount of risk accompanying a massive dangling carrot like this. I say it looks like a darn good opportunity.
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Now, don't get me wrong. There's certainly risk here. In the second quarter, the company had to take unrealized write-downs on parts of its portfolio and ultimately reported a loss for the period. As of mid-August, the net asset value of American Capital's portfolio had dropped 19% since December.
However, investors who take the plunge today not only stand to collect that sweet dividend but can also purchase the stock at a 16% discount to the NAV (net asset value, or the value of the corporation's assets less liabilities), giving them some cushion against further declines in portfolio value.
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Where to look for dividendsDividend-paying stocks that could help investors weather the bear market are recommended by money manager Roger Nusbaum of Your Source Financial and Joseph Keating, the chief investment officer at RBC Bank.
"The credit crunch and resulting lower valuations should prove beneficial to (American Capital) in being able to invest at attractive valued opportunities. The high dividend, (funded) through 2009, provides strong downside protection," BigPapiRoach concluded.
You can see who else has been bullish on these stocks, and 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.
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.
This article was reported and written by Matt Koppenheffer for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.
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