4 compelling dividend plays
High-quality dividend-paying stocks are carrying yields above those on government bonds while offering investors a chance for growth once the economy improves.
Investors are always hunting for the next big stock -- the dream stock whose price increases several times over after the market finally discovers it.
In hindsight, it's easy to identify the 10 best stocks of the decade. But I'm more interested in the tools that can not only help me find new stock ideas today but also evaluate tomorrow's greatest companies.
MSN CAPS, a 120,000-member community of investors helping each other beat the market, offers a variety of resources to seek out tomorrow's market leaders. We've enlisted CAPS' nifty stock screener tool to help us find stocks with:
A market value of at least $1 billion.
A long-term debt-to-equity ratio of less than 0.5.
A dividend yield of at least 4%.
A price-to-earnings ratio of less than 25.
Once we've found our candidates, we'll tap the collective intelligence of the CAPS community to evaluate whether these companies present real opportunities -- or if the numbers fail to tell the true story.
The ratings and comments from CAPS members aren't always on the money, but there's value in a system that incorporates the knowledge, information and skills of thousands of participants. As wisdom-of-the-crowd experiments show, collective estimates are often superior to the estimates of most individuals.
Even though President-elect Barack Obama has discussed raising the tax on dividend income for top earners, either to 20% or 25%, dividend-paying stocks have allure in this market. With 10-year Treasurys yielding about 2.2%, companies with the cash flow to continue paying dividends ought to remain in demand.
Let's take a closer look at some of the stocks our screen pulled up one mid-December day.
Dividend-paying dandies Company Sector Dividend yield Market cap Forward price-to-earnings ratio
Manulife Financial
Life insurance
5.3%
$23.8 billion
11.7
Total
Oil and natural gas
5.4%
$118.4 billion
6.6
StatoilHydro
Oil and natural gas
5.4%
$48.5 billion
5.1
Emerson Electric
Industrial equipment
3.9%
$25.8 billion
11.9
Each had five-star ratings -- the highest possible -- at CAPS, signifying that each is considered best-of-breed by the community.
Shares of life insurers have been hammered since American International Group (AIG, news, msgs) imploded shortly after Labor Day. Canadian life insurer Manulife Financial (MFC, news, msgs) is down 55% over that period.
Fear by association isn't sellers' only motivation -- many investors and analysts remain leery of perceived risks associated with long-term-care products.
