January 7, 2008

A Set for Life Dividend Stock?

From the Fool:

Why should you listen when Charles Mangum talks? Because this 42-year-old's Fidelity Dividend Growth (FDGFX) fund has beaten 80% of its peers over the past decade.

Like you and me, Mangum is in pursuit of the ultimate dividend stock -- the stock that will leave investors set for life. And having trailed his competition in recent years, Mangum is hungry -- and looking for a promising stock that the market's turned its back on.

The three best S&P stocks of the past half-century
Is that ultimate stock out there? Wharton professor Jeremy Siegel's research says it is. In analyzing the top 20 S&P 500 stocks of the past half-century, Siegel found a solid dividend payout to be a universal trait among the best performers. In that spirit, I'll give you three dividend stocks worth checking out for your own portfolio, but first, I'd like to share Professor Siegel's top three stocks with you.

Third on Siegel's list was Bristol-Myers Squibb (NYSE: BMY), with average annual returns of 16.4%. For perspective, $1,000 invested here at the beginning of Siegel's study would be worth more than $1.2 million today.

Second was Abbott Labs (NYSE: ABT), with a 16.5% average annual return.

First place? The stock we love to hate: Altria (NYSE: MO). Over nearly 50 years, this beleaguered company averaged a 19.8% yearly return. Those extra few points add up -- to a whopping $4.6 million from an original $1,000 investment!

I still hate Altria, but I can't help but love its math -- and aggressively seek the same kind of returns for my subscribers.

Where can you find a dividend stock that will set you for life?
Remember, Mangum is seeking the same thing. So I perked up when I heard that Bank of America (NYSE: BAC) is one of his favorite stocks right now. Why? Bank of America is a current Income Investor recommendation.

Here are some of the reasons why BofA is beloved of newsletter and fund alike:

  1. Bank of America isn't a Wall Street darling right now. That helps because we don't want hyped, overvalued stocks.
  2. The company absolutely dominates U.S. retail banking. Having a gorilla on your side in a bar fight never hurts.
  3. Bank of America is paying a dividend of more than 6%! You're getting more than half the market's historical average annual return just standing still.
  4. The guys and gals from Charlotte (that's BofA) have a solid balance sheet. They sold off their subprime business a while back (whew!), and credit appears under control.

The qualities that BoA displays are some of the very things I look for when finding stocks for Income Investor. I'd like to share them with you in their more general forms:

Attractive price: Saving money isn't just for the grocery store. Paying too much for a stock is a mistake that could take years to erase. Buy a good company at a good price.

Dominant market position with a competitive advantage: Why buy the rest when you can buy the best? In good times, industry leaders outdo the industry laggards. And in bad times? They buy them up -- or take their market share.

A stable, growing dividend: Want to wind up cash-poor in retirement? If not, buy a company with a dividend that will last -- and grow.

A quality balance sheet: This should come with the territory for dividend stocks, but sadly, it doesn't always. Don't buy companies carrying more debt than they can handle.

No comments: