Don't Mix Dividend Investing And Trend Following

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Includes: BLK, IBM, LOW, LSTR, MCD, SYK
by: Dividend Dog

Do trend-following and dividend investing mix? The Street published the article "6 Stocks With Double-Digit Gains and Big Dividends" which lists six dividend-paying stocks with double-digit share price gains.

To evaluate the strategy, details of each of the stocks are summarized below:

BlackRock, Inc. (NYSE:BLK) recently traded at $188.64 per share. At this price level, the stock has a 2.9% dividend yield. For 8 out of the past 10 fiscal years, a share of BLK paid a total of $17.20 in dividends. Of these dividend payments, a total of $14.60 were paid in the last five years.

BLK shareholders have seen a 5.8% change in share price over the past year. At present, shares of this large cap stock trade at a price-to-book ratio of 1.4, a price-to-earnings multiple of 15.2, and a price-to-sales multiple of 3.7 (trailing twelve months). Over the past decade shareholders savored a 15.0% average annual return on equity.

International Business Machines Corp. (NYSE:IBM) recently traded at $193.64 per share. At this price level, the stock has a 1.6% dividend yield. For 10 out of the past 10 fiscal years, a share of IBM paid a total of $12.40 in dividends.

IBM shareholders have seen a 5.3% change in share price over the past year. At present, shares of this large cap stock trade at a price-to-book ratio of 11.3, a price-to-earnings multiple of 14.8, and a price-to-sales multiple of 2.1 (trailing twelve months). Over the past decade shareholders savored a 38.9% average annual return on equity.

Lowe's Companies Inc. (NYSE:LOW) recently traded at $27.20 per share. At this price level, the stock has a 2.1% dividend yield. For 10 out of the past 10 fiscal years, a share of LOW paid a total of $1.92 in dividends. Of these dividend payments, a total of $1.59 were paid in the last five years.

LOW shareholders have seen a 7.7% change in share price over the past year. At present, shares of this large cap stock trade at a price-to-book ratio of 2.0, a price-to-earnings multiple of 19.9, and a price-to-sales multiple of 0.7 (trailing twelve months). Over the past decade shareholders savored a 16.9% average annual return on equity.

Landstar System Inc. (NASDAQ:LSTR) recently traded at $52.12 per share. At this price level, the stock has a 0.4% dividend yield. For 6 out of the past 10 fiscal years, a share of LSTR paid a total of $0.82 in dividends. Of these dividend payments, a total of $0.77 were paid in the last five years.

LSTR shareholders have seen an 8.8% change in share price over the past year. At present, shares of this mid cap stock trade at a price-to-book ratio of 8.8, a price-to-earnings multiple of 23.9, and a price-to-sales multiple of 1.0 (trailing twelve months). Over the past decade shareholders savored a 41.1% average annual return on equity.

McDonald's Corp. (NYSE:MCD) recently traded at $100.01 per share. At this price level, the stock has a 2.8% dividend yield. For 10 out of the past 10 fiscal years, a share of MCD paid a total of $10.53 in dividends.

MCD shareholders have sustained a -0.3% change in share price over the past year. At present, shares of this large cap stock trade at a price-to-book ratio of 7.7, a price-to-earnings multiple of 19.0, and a price-to-sales multiple of 3.8 (trailing twelve months). Over the past decade shareholders savored a 20.9% average annual return on equity.

Stryker Corp. (NYSE:SYK) recently traded at $55.61 per share. At this price level, the stock has a 1.5% dividend yield. For 10 out of the past 10 fiscal years, a share of SYK paid a total of $2.11 in dividends. Of these dividend payments, a total of $1.73 were paid in the last five years.

SYK shareholders have enjoyed a 11.9% change in share price over the past year. At present, shares of this large cap stock trade at a price-to-book ratio of 2.8, a price-to-earnings multiple of 16.1, and a price-to-sales multiple of 2.6 (trailing twelve months). Over the past decade shareholders savored a 22.1% average annual return on equity.

Each of these stocks has a track record of growing equity and dividend income for investors. This list does not disappoint on quality.

Unfortunately, valuation is another story. None of these firms is trading at a compelling valuation, and LSTR and LOW multiples are a bit pricey. Higher valuations like these are to be expected after a period of double digit share price gains. Truly, this isn't surprising. Rather than buy at rich valuations, dividend investors should wait until these stocks trade at lower valuations before seriously considering them as additions to their income portfolios.

There is a deeper question: should dividend investors chase returns? Asset bubbles have scarred investors over the past 12 years and should be a constant reminder that valuation should not be ignored. Retail investors should either focus their active investing on valuation or avoid stock picking altogether. It is impossible to relive the past, and yesterday's returns are not a guarantee of future returns.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.