Finding Value in Dividend Stocks

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By Marcelina Hardy

Monday, October 7th, 2013

When a company owner makes a profit, he has two options: invest the money or pay a dividend to its shareholders. Because paying shareholders will entice more investors to buy a stake in the company, many decide to pay out a dividend.

Not all companies that pay out a dividend are a good choice. Its important to research the company, its profits, and the many factors that play into its dividend history. Some of the leading experts in dividend investments provide excellent advice for how to choose the best dividend stocks.

Jordan Waxman, managing direct of HSW Advisors in New York, told MarketWatch :

Dividend-paying stocks will outperform on the downside and give you much more of a cushion. High dividend yields are more likely to be paid by defensive companies that perform well during a recession. Theres a lot of protection there.

Peter Anderson, investment advisor and columnist for Forbes. calms the fears of investors concerned about dividend investing as the Feds potential tapering looms. His tip is to seek out companies that wont be affected by the Feds tapering and resulting interest rate increases particularly stocks that could still increase payouts as the Fed tapers more and interest rates rise.

These stocks will serve as a hedge against the higher interest rates. Anderson also suggests focusing on lower dividend payers versus high yielding ones because they will be more likely to increase payouts.

He identifies two great options for dividend stocks thatfall right in line with his strategy: Comcast (NASDAQ: CMCSA) and Inter Parfums (NASDAQ: IPAR). Comcast has a dividend growth of over 40 percent, with consistent increases throughout history. Its yielding 1.7% now and is likely to continue raising dividends well into the future. Inter Parfums has a yield of 1.6%, with a balance sheet and cash flow profile that makes many investors excited.

Kelley Wright of Investment Quality Trends agrees that choosing stocks just for their high yield isn’t the best bet. Instead, he advises what MarketWatch refers to as the bluest of the blue-chip dividend-paying stocks. He particularly recommends these stocks when they are close to the high end of their historical range.

To know if a stock is at this point, he believes it should satisfy five of these indicators, as laid out by MarketWatch:

Has increased its dividend at least 5 times over the last dozen years

Has an S&P Quality Ranking in the A category

Has at least 5 million shares outstanding

Has at least 80 institutional investors