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Barron's: 6 Dividend Stocks That Beat the S&P 500

Barron's: 6 Dividend Stocks That Beat the S&P 500
(Dollar Photo Club)

By    |   Monday, 01 July 2019 09:18 AM

Dividend-paying stocks continued to post a solid overall performance in the first half even though they lagged behind the market.

Barron’s reported that through June 24, the S&P 500 index had a year-to-date return of 18.7%, compared with just under 16% for the S&P 500 Dividend Aristocrats. These 57 companies, which have increased their dividends for at least 25 straight years, are a decent proxy for large-cap dividend stock performance.

Dividend stocks “are delivering as you would like them to deliver,” says David Katz, president and chief investment officer at Matrix Asset Advisors in White Plains, N.Y.

A recent note by Ned Davis Research asserts that “dividend stocks enter the potential easing cycle the most attractively valued in years versus other stocks and bonds.”

Still, says Katz, “the question is, where do you go from here? We think you are going to have a much more volatile environment—but a good environment, just not as robust. And that should favor some of these dividend stocks.”

Katz’s firm is underweight utilities and real estate, where it doesn’t see as much value, and it has lightened up on consumer-staples stocks. “We’ve been buying a broader basket of dividend stocks,” says Katz, pointing to health care and financials as areas of opportunity.

Amid that backdrop, Barron’s suggested six stocks have yields above 2.5% and better returns than the S&P 500 this year.

  • Consolidated Edison (ED)  
  • Target (TGT)     
  • Kimberly-Clark (KMB)      
  • PepsiCo. (PEP) 
  • Procter & Gamble (PG)      
  • Illinois Tools Works (ITW)

For his part, Newsmax Finance Insider Robert Ross recently warned about the dangers of blue-chip stocks' payouts.

"High dividend-paying stocks like Kraft Heinz (KHC) can often leave investors with regret. And that makes sense. Many companies must pay high dividends to compensate investors for the risk of owning the company’s stock," Ross explained.

"Some of these companies borrow money and use the debt to pay their dividend. That’s exactly what Kraft Heinz was doing. And this strategy often ends up being a disaster for investors," Ross recently wrote for Newsmax Finance.

Ross said you must look at three key things when evaluating dividends.

  • The most important is the payout ratio. The payout ratio is the percentage of net income a firm pays to its shareholders as dividends.The lower the payout ratio, the safer the dividend payment.
  • The second is the debt-to-equity ratio. The more debt a company has, the harder it gets to run a business. This includes—you guessed it—paying the dividend.
  • The third is free cash flow. This is the amount of cash left over after a company pays its expenses. If any of these measures is flashing red, you know the dividend is in trouble.

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Dividend-paying stocks continued to post a solid overall performance in the first half even though they lagged behind the market.
barron’s, dividend, stocks, beat, s&p 500
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2019-18-01
Monday, 01 July 2019 09:18 AM
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