Daily Gains Letter

Great Dividend Stock Could Be Ready for Breakout

By for Daily Gains Letter |

270213_DL_clarkThere are a lot of great dividend paying stocks out there, but a good number are trading right at their 52-week or all-time highs on the stock market. Equity investors know that it’s tough to buy a stock trading right at its high.

Among dividend paying stocks, E. I. du Pont de Nemours and Company (NYSE/DD), otherwise known as DuPont, is a higher-yielding stock that’s worth having on your radar screen right now. The company’s last two earnings reports weren’t the greatest, and the stock hasn’t participated like other successful dividend paying stocks in the Dow Jones Industrials.

DuPont has been in a stock market downtrend for the last two years, and it really hasn’t done much over the last dozen years. The stock currently yields around 3.6%, but its valuation is fair at around 16-times current earnings.

Like I say, DuPont is a company to watch right now because a lot of the stock market isn’t currently worth buying. Higher dividend paying stocks, especially those in the Dow Jones Industrials, are almost always worth buying when they’re down. DuPont’s long-term performance on the stock market is modest, but the one thing the chart below doesn’t include is reinvested dividends.


Chart courtesy of www.StockCharts.com

According to Morningstar.com, DuPont’s simple rate of return over the last 3.5 years (right after the financial crisis low) is about 45%. With dividend reinvestment, the return jumps to over 65%.

Currently, Wall Street expects DuPont to produce earnings growth of around 17% this year and 12% in 2014. Combined with the company’s dividend and valuation, those are pretty decent financial metrics if you’re a stock market investor looking for new positions.

Dividend paying stocks are the only way to go this year, because investment risk is high and uncertainty in the global economy is so pronounced. So even if you don’t get capital gains, the annualized dividend yield from most dividend paying stocks should keep you ahead of inflation.

The stock market is now in consolidation mode after a strong start to the year. First-quarter earnings season is going to be extremely important for investor sentiment and how the rest of the year shapes up. There is a lot of cash sitting on the sidelines in this market, and there are a lot of investors willing to buy. But what the stock market needs is confirmation from corporations that there is growth there.

First-quarter earnings season will be the catalyst for the next stock market correction. If the numbers hold up, stocks can still tick higher because valuations are fair. If they don’t, then investors are going to jump ship, because that will be the catalyst they need to cash out of the stock market’s recovery rally of the last four years.

DuPont is active in a lot of good business areas, and it’s a very decent barometer on the resource and industrial economies. I’d put this stock on my watch list in anticipation of first-quarter earnings results, which are due later in April. It’s one of the higher dividend paying stocks that’s ready for a turnaround.

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