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So if the recovery is weak, and you don't want to hold a bond with a poor yield rate, what is an alternative approach to enacting a proven defensive strategy for investors?
A better strategy is to buy a bucket of large market cap companies that look attractive from a valuation perspective (here at The Applied Finance Group (AFG), we like to look at valuation as well as economic profitability) and also pay a dividend. Dividend stocks offer investors a steady stream of income, similar to the bond market, yet have the chance to offer higher returns if you invest in stocks that are poised to outperform as well.
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A good question to ask is "¦ how have dividend paying stocks fared against non-dividend payers in the past? One scary thing is that in 2009 many companies cut or did away with their dividends, prompting some investors to sell their holdings in those companies, making it the worst year ever for dividend stocks. Does that mean that you must run away from the dividend payers? Not so fast. Standard & Poor's did a study comparing the long term return performance of dividend paying stocks to non-dividend payers. A $10,000 portfolio of S&P 500 dividend payers held from January 1985 to December 2009 outperformed a portfolio of non-dividend payers by more than 30% over the same time-period. The chart below from Standard & Poor's also reinforces the fact that stocks that pay dividends have done better than their non-dividend paying brethren since 2000.
Today we will provide our readers a list of safe, stable dividend-paying companies that also look attractive according to key criteria developed by The Applied Finance Group (AFG). First we start with the S&P 500, as the index contains larger companies that tend to be more stable and are more able to sustain dividend payments for a longer timeframe. We then removed all non-dividend payers and ranked the remaining dividend paying companies from most attractive to least. We focus on economic profitability and valuation attractiveness, among other criteria, to give our readers a starting point list. By providing quality investment opportunities we are pointing our readers in the right direction to firms likely to outperform, with the added bonus of receiving a dividend payout.
source: www.economicmargin.com
If you are a professional investor and would like to learn more about AFG's valuation techniques and Economic Margin methodology or like to review some of your holdings on AFG's valuation system email mghioldi@afgltd.com and an AFG representative will contact you.
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