You know what I like right now?
Dividends.
A good, solid company paying sustainable dividends is a
great thing to own, especially during times when the market's
near-term course is uncertain. Like, um, now.
Here's the thing about dividends: As long as the company
can continue paying them -- as long as they're
sustainable-- that's money you make
no matter what the market does. In fact, assuming
you're holding long-term and reinvesting those dividends,
market dips can actually be good, in a way: Your dividends
will buy more shares when prices are low.
The best gifts keep on giving
But the bit about sustainability is
really important. I love companies that pay a great
dividend, but I'm wary of stocks with double-digit dividend
yields. Many companies that show up in high-yield screens
have recently gotten themselves into trouble -- and taken a
big hit to their share price. They may even have cut or
eliminated their dividends -- but it can take awhile for the
big online databases to catch up with developments like
that.
One thing to consider when looking at sustainability is a
moat-- a significant barrier to entry for new
competitors. This is something Warren Buffett talks about
frequently, and it's important: A big moat is a sign of a
company that can
sustain its success.
Long story short, don't just buy a fat dividend yield --
buy a
good company.
Value is the extra edge
Companies that pay dividends don't tend to be hot
growth candidates. On the other hand, given the
odd dynamicsof the recent market run-up, there are some
great, solid companies selling at what are arguably value
prices, even now.
So first, I looked for companies with good, sustainable
moats. Then to narrow down all of those good businesses, I
looked for ones that also had a strong return on equity (a
great quick indicatorof management effectiveness --
another key to sustainability) and solid dividend yields.
Here are some of the names I turned up:
Stock
CAPS Rating (out of 5)
P/E
Long-Term Debt/Equity
Return on Equity
Dividend Yield
Caterpillar (NYSE: CAT)
****
15.8
324%
21.4%
3.6%
Bristol-Myers Squibb (NYSE: BMY)
****
8.0
44%
27.4%
5.6%
SYSCO (NYSE: SYY)
*****
14.3
72%
30.8%
3.8%
Exelon (NYSE: EXC)
****
11.9
99%
25.0%
4.2% Continued... |