Dividends You Can Count On

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I'm a confirmed, bona fide, life-long dividend junkie, and you might be on too. But one of the harshest lessons I learned in the panic of 2008 was that sometimes dividends can fail -- and sometimes the very companies that pay the dividends can self-destruct in an insanely short period of time. Billions of dollars of wealth (a tiny part of it mine) and untold millions in beautiful dividend income vanished like a pristine sandcastle amidst overly-sugared 3-year-olds. Sitting by the silty ruins of the wealth I once felt, I have no choice but to re-evaluate and rebuild.

Gold Isn't All That Glitters

Companhia Siderurgica (NYSE: SID) is one of the biggest producers of tin mill products in the world. Considering that the company is also one of the largest producers of steel in South America, that's a fair moat. I respect the 7.4% dividend yield and I adore the 40.16% ROE. On the other hand, I don't like how a lot of Latin America and the rest of the developing world far too often compete on price. The race to the bottom is a bloody contest, as evidenced by Siderurgica's rather small 21% profit margins.

Keeping the World Going is Pretty Profitable

Brookfield Infrastructure Partners (NYSE: BIP) owns a lot of neat stuff, including timber areas and power lines. However, the company is open to owning just about anything in the realm of infrastructure around the world. While I normally like to see a bit more focus, in this case I'm okay with diversification. Going without trees or power would suck, and I can't imagine a world without the benefits of either of them. With a strong ROE of 24.65 and awesome margins of 37.91%, there's a pretty good chance Brookfield's 6.3% dividend is going to keep going for a long time to come. I sleep better with such justified faith.

Being Tightly Niched Works Wonders

Terra Nitrogen (NYSE: TNH) has its good and bad points. While I appreciate its lock on nitrogen production, I'm not so keen on the fact that Terra's main offering is a brand of urea ammonium nitrate fertilizer. At heart, most of what Terra produces is still commoditized. Though I greatly respect the ultra-efficient 197.81 ROE and 35.73% profit margins, I tend to wonder about the 10.7% dividend yield I'm finding here. Usually when they're that high there's a reason, and that reason is rarely "so you can make more dividend profits." I have few doubts about the company, but I would redouble my research to figure out why the market is bearish on Terra.

Making the Most of Bad Things

Two Harbors Investment (NYSE: TWO) is the token REIT on this list. While investing in residential mortgage-backed securities used to be a sexy way to juice profits, today it basically just says you've got the guts to stick it out in an unpopular market segment. I respect that, and I respect Two Harbors's 84.76% profit margins. Its 15.42 ROE is nothing to write home about, though. And I also know that at heart, most mortgages are made to be sold to the biggest patsy. As great as it is to suggest a system that will let you know who'll pay their mortgage or not, there's a major element of guesswork involved. It's rather like telling which of your tenants will pay their rent -- you don't know, you can't know in advance and it's depressing to try. I'd look long and hard for a hedge before chasing this 15.3% dividend. 2008 still stings, and it probably will for a long time hence.


pongun has no positions in the stocks mentioned above. The Motley Fool owns shares of Brookfield Infrastructure Partners. Motley Fool newsletter services recommend Brookfield Infrastructure Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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