More low PEs and sweet dividends

Portfolio sweetness: a well above average chance for portfolio outperformance!

With the number of articles I've written over the past while about dividends and low PE ratios, I thought I'd continue the trend.

A fairly recent report issued by RBC Dominion Securities identified a list of stocks that met a trifecta of tests for outperformance: relatively low PE ratio, relatively high dividend yield, and positive dividend growth over the past five years. The following S&P 500 companies were included in the report:

• Bank of America, BAC

• Pfizer, PFE

• KB Home, KBH

• Cincinnati Financial, CINF

• Fannie Mae, FNM

• Conoco Phillips, COP

• DR Horton, DRI

• Home Depot, HD

Note that these stocks all have a dividend yield above 1.5%, with most above 2.5%, and a PE below 20 (but most are below 13).

The report also included some Canadian TSX-listed stocks, including:

• Russel Metals, RUS

• Reitman's Canada, RET.A

• Teck Cominco, TCK.B

• National Bank, NA

• Rothmans, ROC

• Power Financial, POW

• Bank of Nova Scotia, BNS

• Encana, ECA

An investor could do a lot worse than look at these stocks as a great starting point for core holdings in a conservative stock portfolio.


JW

The Confused Capitalist

Dividend Divas

Ain't dividends grand?

Boy I remember back in the bad old days of the late 1990's, when dividend-paying stock-owners were looked down upon, by their Nasdaq-investing friends. Their stocks seemingly soared, while boring old dividend-paying stocks just kind of coasted along. Time has shown of course, that many Nasdaq-type stocks were destined to crash and burn, while the dividenders did nothing more than produce reliable consistent wealth growth.

A recent study by RBC Dominion Securities show how dramatic that difference has been. They isolated stocks into three silos, one which was stocks that paid no dividends over the past ten years, another consisting of stocks with stable dividends, and the last consisting of stocks that consistently increased their dividend over the period.

In the US market, to May 30, the average annual rate of return was as follows:

1. No dividends: 6.5% annually
2. Stable dividends: 8.8% annually
3. Increasing dividends: 9.6% annually.

In Canada, the difference was even starker, and more remarkable:

1. No dividends: 1.3% annually
2. Stable dividends: 15.5% annually
3. Increasing dividends: 17.2% annually

Just to remind you of exactly what kind of return 17.2% is - that'll double your wealth in just over four years. Please bore me some more!



JW

The Confused Capitalist