Value Investing / Main Index / previous / next

July, 2012


Though touted as good deals, both growth stocks and small-capitalization low price to book value equities frequently lack dividends, and this can put them at a disadvantage. On a risk-adjusted basis and everything else being equal, dividend stocks tend to be the long-term winners. Stocks in the top 100 or so for yield, if they also have reasonable dividend payout ratios (0.5 or below) and levels of debt (also 0.5 or below), historically have had lower volatility and have performed about 5%-6% a year better in average total return than the S&P 500 Index.

Now there are reasons to be cautious about dividend payers: 1. Tax laws may change soon, lifting the tax rate on dividends from 15% today to whatever is one's ordinary income rate (which can be quite a bit higher), so, particularly in the case of higher yielding stocks, it may be wise for folks with above average earnings to protect dividend income by keeping it in tax-deferred accounts; 2. Some "higher yielders" have more income because there are management or profitability difficulties, so weeding through and doing one's due diligence is important; and 3. Foreign dividend stocks are generally taxed about 10% before an investor receives anything.

Notwithstanding these cautions, the stocks of sound dividend paying companies are relatively secure and often provide total return averages in excess of the "safe" returns of Treasuries, which also do not generally keep up with inflation.

Here are several dividend paying stocks that seem appealing based on my own investigations (but I encourage readers to check into this area of stock investing for themselves and come to their own conclusions):

Eaton Corp.ETN$39.534.0%
Genuine PartsGPC$64.373.0%
Intel Corp.INTC$26.063.2%
KLA - TencorKLAC$49.333.0%
Microsoft Corp.MSFT$30.672.7%

Depending on how much work one feels like doing, one can reevaluate the higher dividend paying stocks about once a year (after a year and a day if considering selling in taxable accounts) or after held for two or even three years. Returns are usually good and not greatly affected by choosing any of these options. Good luck with your own dividend paying portfolio.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

Value Investing / Main Index / previous / next