by Kelley Wright, editor IQ Trends
With the 10-Year Treasury yielding 1.65% and the 5-Year and 2-Year
yielding 0.69% and 0.32% respectively, investors are desperate for
income.
Out of desperation or necessity then, investors are
starting to catch on that some companies pay cash dividends and the
really good ones, the best of the best, raise their dividends on a
consistent basis.
The key with dividend paying companies though is having a value
identification system to differentiate the good from the bad and the
ugly.
Now the term "good" can mean different things to different
people. For the inexperienced investor good generally refers to a high
yield.
In fact, I had a discussion the other day with a new
subscriber who asked why don't you just rank all stocks by high-yield to
low-yield and just buy all of the higher-yielding stocks.
On a certain level I understand this line of thinking but to paraphrase the Good Book, man doesn't live on high-yield alone.
While
yield is important, it is after all a measure of return on investment,
it isn't the end all be all of value identification, however. What we
have found is the best of the best are businesses that offer products
and services that consumers want and need.
They have management teams that demonstrate managerial competence over
long periods of time. They have long-term track records of earnings and
dividend improvements.
The percentage of earnings paid out in
the form of dividends (the payout ratio) is sufficient to reward the
shareholder while allowing the company flexibility to maintain and grow
the business.
Debt is managed and as used as a tool rather than
as a crutch or a mask to cover up deficiencies or mistakes. These
companies are generally recognized as a leader in their field.
While
buying a great company that is an easily recognized brand is important
from the qualitative standpoint, your work as an analyst and investor is
still only half done; the other half is the value proposition.
If you do everything right and then overpay for a stock you increase your downside risk and reduce your upside potential.
This
is why it is critical to know the long-term repetitive dividend-yield
patterns of great companies. Price is what you pay; value is what you
receive.
Meanwhile, here's our latest Timely Ten list, which
represents our top ten current recommendations. Each has exemplary
long-term dividend growth, and a P/E ratio of 15 or less:
Chevron Corp. (
CVX) -- yielding 3.2%
Eaton Corp. (
ETN) -- yielding 3.4%
United Technologies (
UTX) -- yielding 2.7%
CVS Caremark (
CVS) -- yielding 1.4%
Occidental Petroleum (
OXY) -- yielding 2.5%
Air Products & Chemicals (
APD) -- yielding 3.1%
Coca-Cola (
KO) -- yielding 2.7%
General Dynamics (
GD) -- yielding 3.1%
Reliance Steel (
RS) -- yielding 1.9%
ConocoPhillips (
COP) -- yielding 4.7%