Cautious Dividend Investing a Must

Given the historically low interest rate and return environment, investors hungry for yield have been gravitating toward dividend stocks, but the valuation advantage of this asset class has diminished. This according to an article in this week’s Forbes by Validea CEO John Reese. “Since yield no longer provides a reliable valuation tool” writes Reese, “investors in search of such dividends must be sure to use other metrics to gauge value.” He emphasizes the importance of evaluating a company’s fundamentals and identifies six high-dividend stocks (yields above 3%) that score well according to his guru-based screening models: United Microelectronics (UMC) is […]

The Weakest Link in Today’s Market

Expending more than you take in works for a diet, but it doesn’t for the stock market. That’s the upshot of a recent Wall Street Journal article by Steven Russolillo, who writes that today’s ultra-low interest rate market is allowing share prices to “stay higher for longer than under more normal circumstances.” What could “end this game” he argues, is the amount of cash companies are paying out to investors–which is now exceeding the earnings taken in. Russolillo quotes New York University finance professor Aswath Damodaran, who believes this to be a significant risk. Damodaran says that “S&P 500 companies […]

Shopping for Dividend Yield Without the Traps

While high dividend yields (yield defined as dividend divided by stock price) are appealing, they become less so if they’re a function of a low stock price that reflects underlying financial weakness. In a recent Forbes article, Validea CEO John Reese says to look for those stocks that show higher-than-average yields along with a history of low dividend payout ratios and high dividend growth. He also offers the following warning signs when a dividend yield seems a little too good to be true: If the company is paying significantly higher dividends than its peers or paying a large percentage of […]

Avoiding the Value Trap when Shopping for Payout

Shopping for yield when interest rates are at rock bottom levels can attract an investor to low-priced stocks that may not be the best prospects. A recent Barron’s article cautioned investors that high-yielding stocks could be “value traps”. Analysts at Evercore’s ISI Team (a research arm of Evercore Partners, an investment bank and money manager) explain, “Dividend yield as a factor for stock selection [must] be combined with other factors.” These other factors include payout ratios (percentage of earnings paid out as dividends) and dividend growth. Specifically, the team looks for stocks with low payout ratios because it allows breathing […]

The Importance of Dividends for the Long Term Investor

Dividend producing stocks are attractive and offer investors compelling values (subscription required) according to this AAII Journal article by John Buckingham, director of research and chief portfolio manager of AFAM Capital and editor of the Prudent Speculator newsletter. Keep in mind, the article was written in mid-2015, but many of the statistics in the article are long term in nature and we believe investors seeking and investing in high dividend paying stocks should take note of this research. There are a number of factors that make Buckingham positive on dividend oriented stocks. First off, Buckingham notes that non-dividend payers have […]

Dividend Stocks Offering More Than Just Dividends

In his latest piece for NASDAQ.com, Validea CEO John Reese takes a look at some dividend stocks that also offer solid fundamentals. In the article, Reese looks at Patrick O’Shaughnessy’s latest research on dividend payers, which shows that high yielding stocks no longer trade at the discount to the market that they traditionally have. According to Reese, the fact that this valuation advantage no longer exists means that investors need to look much more closely at the fundamentals of a company and cannot rely on dividend alone. As Reese puts it, “Rushing blindly into high-dividend stocks simply because they have a […]

Peter Lynch And High-Dividend Stocks

Every other issue of The Validea Hot List newsletter examines in detail one of John Reese’s computerized Guru Strategies. This latest issue looks at the Peter Lynch-inspired strategy, which has averaged annual returns of 11.2% since its July 2003 inception vs. 6.4% for the S&P 500. Below is an excerpt from the newsletter, along with several recent top-scoring stock ideas from the Lynch-based investment strategy.

Nygren: Dividends Will Be Key

In his first-quarter letter to shareholders, top fund manager Bill Nygren of Oakmark says that he’s keying on companies that are putting their cash to work. “Corporations today have unusually strong balance sheets and are generating much more cash than they can profitably reinvest in their own businesses,” Nygren writes. “Unless managements just let the piles of cash keep growing, which is clearly suboptimal, there are only three ways to deploy it: higher dividends, share repurchases and acquisitions.  And companies are doing all three.” Nygren says that most investors don’t focus on those uses of cash. “They assume that EPS […]

High-Dividend Stocks for the Gurus

In his latest column for MSN Money’s Top Stocks, Validea CEO John Reese highlights a handful of high-dividend stocks he thinks are worth a look right now.  “In the months leading up to the fiscal deal, high-dividend stocks have been taking some hits,” Reese writes. “While fiscal cliff and higher taxes on dividends may not be the only reason, no doubt these concerns were playing some role in dividend stocks’ sluggishness.” But, he says, the declines “have shaken some of the excess bullish sentiment out of high dividend plays, which had gotten fairly pricey earlier this year as investors, starved […]

Top Dividend Manager Talks Strategy

T. Rowe Price’s Tom Huber, whose Dividend Growth fund is in the top 13% of funds in its category over the past five years, according to Morningstar, says that tax increases associated with the fiscal cliff aren’t reason to avoid dividend-paying stocks. “There is a lot of discussion and worry [about the tax hikes] more than I think it deserves,” Huber tells Barrons.com. “Higher tax rates are not good. But I think [these stocks] have been shown to work over time.” While consumer staples, utilities, financials, and telecom have traditionally been areas to find strong dividend plays, Huber says that’s changing, […]

Don’t Ignore The Dividends

The Wall Street Journal’s Matt Phillips has a simple message for investors: Do not forget about dividends. “Dividends matter! Dividends matter! Dividends matter!” Phillips writes on the Journal’s “MarketBeat” blog. He references recent commentary from Standard & Poor’s Howard Silverblatt as proof. “We are near another all time high for total return, even as stocks remain 10.2% off their all time high,” Silverblatt said. “We need a 0.14% total return to set a new record, which includes today’s dividends adding .02%.” Silverblatt says the indicated dividend rate is “up 13.0% from 12/30/2011, 2012 payment estimated to be an all time […]

Stocks Offering Nice Dividends — And Value

With bonds yielding so little, many investors have been looking for yield in the form of high-dividend stocks — which has made some of those picks rise to unattractive valuations. But in his latest article for Forbes.com, Validea CEO John Reese looks at some stocks that are offering nice dividends, and still trading at cheap valuations. Reese refers to data that top fund manager Bill Nygren cited in a recent letter to shareholders. “Nygren points out that, historically, the top 100 dividend payers in the S&P [500] have collectively sold at a price/earnings ratio that is about three-quarters of the […]

Dividend Data Points to Market Being Undervalued

MarketWatch’s Mark Hulbert says that the stock market is “closer to undervalued” than overvalued, and that the market is “poised to produce above-average returns over the next couple of years.” Using data from Investment Quality Trends, Hulbert looked at stocks of some of the “highest quality and most profitable companies, as defined by criteria such as an S&P quality ranking in the ‘A’ category, 25 years of uninterrupted dividends, and at least five dividend increases over the last dozen years.” Right now, only about 250 stocks make that list, he says. IQT puts each of these stocks into one of […]