Now's the Time to Add Dividend Stocks to Your Portfolio

If you believe that we've already seen the bottom of the market and it has nowhere to go but up (or sideways at the worst), then you might be thinking that now would be a good time to start lining your larder with some high dividend-paying stocks. Why would you want to do this? For the following reasons:

1. Dividends account for most of the wealth accumulated in the stock market. And don't believe that dividend stocks are for income generation only—au contraire mon ami! In fact, if you're a young person just beginning to save for retirement (which you should be doing!!!!), adding some high-quality dividend-paying stocks to your portfolio is one of the wisest things you can do. Especially if you elect to re-invest your dividends into buying shares of your stock. This is a form of compounding, one of the most powerful methods of generating long-term wealth.

2. Buying dividend-paying stocks at depressed prices boosts your dividend yield because of the low cost basis.

3. Buying dividend stocks at depressed prices also gives you the added benefit of price appreciation.

To find stocks that have high dividends and with good fundamentals, I ran a stock screen on the MSN Money Central Stock Screener (which is free to all and with whom I have no affiliation) according to the following criteria:

• Average daily volume greater than 100,000 shares. This ensures liquidity and a narrower bid/ask spread.
• Last price greater than $2. In bullish environments, this criteria could be raised, but I chose this value since many issues are so undervalued.
• Current dividend yield = As high as possible.
• Stock Scouter rating greater than or equal to 7. This is an attempt to capture the higher quality issues.

I screened the top 50 stocks according to the bullish strength in their charts. (I know this is subjective but judging from yesterday's action, this group is up on average over 3.5% as of this writing.) The following twenty-two stocks are my top picks. The stocks highlighted in rose are those that boke out yesterday.

The table is divided into three groups: the top seventeen stocks are drawn from the energy, financial, real-estate, and utility sectors—exactly where you'd expect to find the high-dividend payers. The next three are from other sectors that are trending up. The last two are currently in a holding pattern after an initial run up. [Click on the chart to enlarge]




So, how should you play these?
I know you've heard that stocks that pay a high dividend should be avoided because there's a usually a reason for the high payments. But in many of these cases, I think that the reason is just that they've been way oversold. Some of these stocks are as much as 75% off their highs. However, that doesn't mean you should neglect your due diligence!

I grouped the table according to sector because it's important to diversify your holdings. You don't want your nest eggs to all come from the same basket, as doing so increases the risk to your portfolio. Remember, it's not only profits that count, but also the amount of risk that goes into getting that return.

If you don't like my picks, try modifying the screening parameters to reflect your investment taste, but don't waste too much time. I think that now is THE time to begin stocking up on dividend-paying stocks. Go gettem'!

Disclosure: The usual investment/financial disclaimers apply to the readers of this blog. Dr. Kris's advice and recommendations are based SOLELY on her research and are in NO WAY guided or influenced by outside parties. She does not accept financial compensation or remuneration for any recommendations made by her, and her recommendations are not to be construed as trading truths. Before acting on any specific recommendation, it is strongly advised that YOU, the reader, do your own research and/or consult with a financial professional. The advice and/or recommendations made in this blog are for informational and educational purposes only. Dr. Kris is to be in no way held responsible for your investment losses due to recommendations and/or advice given here.

As with all investment/financial theories, information, and prognoses, past performance is no indication of future success.

Comments

[SHANDRY DAN:]

Problem here even though Dr Kris has screened for quality companies "Stock Scouter rating greater than or equal to 7. This is an attempt to capture the higher quality issues" - in this environment, dividend cutting and indeed cessation of dividend payment altogether is rife. You can't screen for that.

May 05 08:21 AM

[Michael D.:]

Chasing yield is a red herring. If it is too good to be true, it probably is. You can grab good yields on dips, but you have to look at the history.

May 05 09:06 AM

[aber:]

i followed ATN and sold it because just last week pratically suspende any dividend due some fusion to "add shareholders value" :-(

May 05 12:10 PM

[realold:]

It seems to me that mid-March was a lot better time to buy dividend stocks. Many much bigger and better known names were paying 5% and have gone up a lot since then. Right now looks like a time to be very careful. Wait for a pullback.

May 05 02:01 PM

[Dee Trooth:]

Dividend Reinvesting, a Cautionary Tale.
Male immigrant to, U.S. arrives, N.Y.C. 1933. Laborer, 1933-41. U.S.Army, 1942-45. Career, 55 years janitor/doorman. Three children, seven grandchildren. Retires 2000, dies 2002. Heirs inherit portfolio of stocks in which dividends had always (when possible) been reinvested. Seven heirs receive equal amounts of $12 million portfolio made up of: AHM, BAC, C, DCOM, NYB, GE, MOT, MSFT, MRK, PFE, WM, XON,YUM. All heirs retained the same full service advisor who kept the portfolio intact except for investing 8% in three mutual funds . AHM and WM became huge amounts of nearly worthless paper before they were sold for 2 - 4 dollars each. Current value of their fathers lifetime of reinvesting dividends is a massive amount of paper worth between, 4.5 - 5 million dollars. Suggestion, only reinvest a portion of your dividends. Cash is real, paper may be an illusion.
.

May 06 11:56 AM

[maryanne:]

Warning - all the quotes and scans show GE at the .31 dividend (1Q paid out last month) Imelt says dividend will be cut to .10 (3%) beginning with 3Q. Just like Shandry and Michael said, do further research.

May 08 10:50 PM

[FRANJUST62@...:]

APN ONLY SUSPENDED THEIR DIV. THEY DID NOT DELETE DIV PERMENTLY


On May 05 12:10 PM aber wrote:

> i followed ATN and sold it because just last week pratically suspende
> any dividend due some fusion to "add shareholders value" :-(

May 14 05:51 PM