Dividend Stocks are Still the Place to Be

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

I wrote back on August 6 about the advantages of staying boring and keeping investing simple (see post here).  For that post, I referenced three stocks that are in no way sexy or glamorous: Kinder Morgan Energy Partners (NYSE: KMP), Kellogg (NYSE: K) and Clorox (NYSE: CLX)

  • Kinder Morgan is a pipeline transportation and storage company with a 5.9% dividend yield.
  • Kellogg is a cereal and convenience food maker with a 3.3% dividend yield.
  • Clorox makes everything from its well-known bleach to household products like Glad and Kingsford to lifestyle products such as Hidden Valley and KC Masterpiece.  It has a 3.5% dividend yield.

With all of the ups and downs in the market, it can be easy to get frustrated trying to keep-up with a long list of stocks to follow.  Sometimes the best way to attack investing is to stay boring, especially if you are short on time.  While two and a half months is clearly not a time horizon that most people should use when investing, the results of these three stocks over that time illustrates well the value of keeping investing simple. 

We have had numerous concerns (other economies like Europe, China & Latin America, the fiscal cliff, the upcoming elections, effectiveness of QE Infinity, etc.) and we've also had a wide variety of earnings results.  Through it all, the S&P 500 has remained relatively flat.  If you had held the three aforementioned stocks as a major part of your portfolio, you'd be crushing those results, especially on an annualized basis.

The chart below shows how well two of the three stocks, Kinder Morgan and Kellogg, outperformed the broader market and that the other, Clorox, has produced comparable results to the S&P 500.

<img src="http://media.ycharts.com/charts/6ffb274fac73760ba2144556261d7bf0.png" />

The New Player

Okay, so this company has been around for quite a while and over its long history has been very successful: Procter & Gamble (NYSE: PG).  However, in recent history, Procter & Gamble has struggled mightily.  Missing earnings expectations and layoffs were typically the headlines for this once proud company.  The chart below shows how their return over the past 5 years has been decent when including dividends, but still left something to be desired, especially when compared to the other three aforementioned stocks.

<img src="http://media.ycharts.com/charts/eca4dd58651ec8f90fd7cee379fb70f5.png" />


But as you can see in the chart above, something happened recently.  Procter & Gamble salvaged their returns over the past few months, otherwise they would be at roughly zero return over the past 5 years, even when including dividends.  Recently, they seem to be turning things around.  In fact, in their most recent earnings report, Procter & Gamble started showing some growth again.  What's even more important is that that they "held or grew market share in businesses representing over 45% of sales."  They further clarify that "results were at the high end of expectations on the top line and ahead of plan on operating profit, earnings per share and cash."

Aside from being hurt by a strong U.S. dollar (net sales were actually down because of currency), these results signal that Procter & Gamble could finally be headed in the right direction.  The most important indicator is that they are no longer losing market share across the board and may finally be gaining back some of their lost market share.

Procter & Gamble provides a 3.2% dividend yield.  For a long-time, this yield didn't really matter much since the stock performance stunk.  Now, with results at least starting to stabilize and perhaps showing some longer-term improvement, Procter & Gamble is joining the group of high-dividend, stable companies you can use to help keep your investing simple. 

Bottom Line

There is no way to be sure that these slow and steady companies will always beat the S&P 500.  But if you are looking to keep investing simple, while still being successful and increasing your odds of capital preservation to go along with the solid returns, then add these high-quality, high-dividend names to your portfolio.  You'll sleep much better at night.

Zaegs is a CPA who writes regularly for both the Motley Fool and FastballFinancial.com.  Come join the thousands of others and see what Zaegs has to offer at FastballFinancial.com.  You can get posts sent to your Inbox for free. 

Zaegs has no positions in the stocks mentioned above. The Motley Fool owns shares of The Clorox Company. Motley Fool newsletter services recommend The Procter & Gamble Company. 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.

blog comments powered by Disqus