18 Dividend Stocks That Will Outlive the Hype
"Leave my beloved dividend stocks alone!" -- I think and drift into memories of the good old days when the media celebrated cash-flow negative "growth" stocks and sneered at corporate bellwethers as "stodgy" and "grandfatherly."
But then my better judgment appeals to me: It's for the best.
Seth Klarman -- the famous and elusive value investor -- once asked himself an interesting question in the foreword of his hard-to-find book Margin of Safety :
I too am pained by the attitude that dividends are a harbinger of corporate doom, a sentiment that -- despite the growing popularity of dividends -- has left many investors conflicted.
First off, history is firmly on the side of dividend-paying stocks: collectively, they outperform . Second, why should the owner of a company only enjoy the fruits of corporate success by relinquishing ownership? This is perverse! If you love the company you own, you should profit more by owning more .
Lastly, dividends can save the world. It may sound ridiculous, but Benjamin Graham once posited that if all corporations maintained a generous dividend policy, then the likelihood of a banking crisis would slowly fade away.
When America's most credit-worthy corporations keep war chests to self-finance their own expansion, then bankers are left with fewer prudent investments (and too much time to get into mischief).
So, having said all of this, here is a turnkey portfolio of dividend growth stocks that should provide a reasonable amount of growth and stability. More than 100 corporations with a history of raising dividends (for a decade or more) were analyzed. Any company with an abnormally low tax rate was discarded. The final list reflects the companies that have a liability-adjusted cash flow yield* 1.5 times greater than the 10-year Treasury note and a return on invested capital (using 5-year average data) greater than the average of all the companies analyzed (22.69%).
The number of stocks on this list that are at or near 52-week highs is somewhat distressing, but no more distressing than the valuation of the stock market as a whole. Remember, this list is constructed using only quantitative criteria (in other words, strictly by the numbers). As always, model portfolios should not be treated as gospel; rather, use them as a starting point for your own research. Similarly, all investors should apply their own valuation and qualitative criteria to determine what constitutes a "good buy."