Sustainable dividends, low beta and upside potential make these names worth holding
“The answer is simple,” Siegel wrote in The Future for
Investors: Why the Tried and True Triumph Over the Bold and the New. “Although
the earnings, sales and even market values of the new firms grew faster than
those of the older firms, the price investors paid for these stocks was simply
too high to generate good returns. These higher prices meant lower dividend
yields and therefore fewer shares accumulated through reinvesting dividends.”
What’s his evidence? “From 1950 through 2003, IBM shares
sold at an average price 26.76 times annual earnings, while Standard Oil traded
at 12.97 times earnings. IBM’s dividend yield (annual dividends divided by
share price) was 2.18%, while Standard Oil’s was 5.19%.”
That higher dividend yield allowed Standard Oil shareholders
to accumulate many more shares, causing returns to snowball, according to a
post on the business school’s blog. Siegel concluded that “dividends matter a
lot,” an historical trend likely to hold true in the future as well.
But there’s more — dividend stocks provide portfolio
diversification. In general, companies that pay robust dividends and have
sustained dividend growth come from mature industries. These companies have a
low beta with relatively stable cash flows. A balanced portfolio has a mix of
high and low beta stocks. Dividend stocks provide that balance.
I also believe that broad market valuations are stretched.
Even with a long-term bullish outlook, it makes sense to go overweight on low
beta stocks that also provide robust dividends. The top stocks to buy in this
article will include some quality low beta dividend stocks.
Let’s discuss the following dividend stocks. Continue reading …
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