Daily Gains Letter

Five Dividend-Paying Stocks That Are Better Than Bonds

By for Daily Gains Letter |

Dividend-Paying StocksThe DOW may very well soon break 18,000 and the S&P 500 continues to edge to new record-highs. But the bullish bias towards the stock market is clear when you consider the alternatives.

The 10-year bond has a yield of around 2.3%, which is pitiful at best, considering the gains we have seen in the stock market over the past five years of this bull market.

Now, while the upside moves will likely become more difficult, stocks are still really the only good option for investors at this time. You may want to take some profits, especially on your big winners or the higher-beta holdings, such as small-cap stocks.

I would be looking at the dividend-paying stocks that offer a combination of dividend income and capital appreciation potential.

Of course, the blue chip dividend stocks on the Dow Jones Industrial Average (DJIA) immediately come to mind. These companies tend to be the best of the best and may be a perfect complement to your overall investment portfolio. Here, I am talking about stocks like The Boeing Company (NYSE/BA), General Electric Company (NYSE/GE), Johnson & Johnson (NYSE/JNJ), The Coca-Cola Company (NYSE/KO), McDonalds Corporation (NYSE/MCD), The Procter & Gamble Company (NYSE/PG), and Wal-Mart Stores Inc. (NYSE/WMT).

iShares DJ Select Dividend Index Fund Chart

Chart courtesy of www.StockCharts.com

You cannot go wrong with stocks like these, as their size allows them the ability to weather both up and down economies. General Electric, for example, could have been bought at $5.00 during the Great Recession; it now trades at $26.00, up fourfold.

General Electric Company Chart

Chart courtesy of www.StockCharts.com

Yet if you are looking for more upside potential as far as price appreciation, you can look at some of the smaller dividend-paying stocks. These stocks are higher-risk, but with the added risk comes the potential for higher returns.

In the investment management sector, a great example of the type of dividend-paying stock investors should watch for is Och-Ziff Capital Management Group LLC (NYSE/OZM, $12.12). This company pays out an impressive dividend yield of 6.8%. It runs money from pension funds and other areas, managing $47.1 billion as of December 1, 2014.

Also in the investment area, Fortress Investment Group LLC (NYSE/FIG, $7.91) managed about $66.0 billion in assets at the end of September. Fortress also pays out dividends of $0.32 annually for a yield of 4.1%.

In the pets market, a great example to take a look at is PetMed Express, Inc. (NASDAQ/PETS, $13.45), the largest pet pharmacy in the United States. The company sells prescription and non-prescription pet medications and other health products. PetMed pays a quarterly dividend to $0.17 for a yield of five percent.

If you are looking for a play on the economy and housing market, an example of the type of stock investors should look for is Knoll, Inc. (NYSE/KNL, $18.75), a maker of workplace and residential furnishings. The stock currently pays out a 2.6% dividend yield.

Finally, for those searching for a more aggressive dividend investment, a great example may be Meridian Bioscience, Inc. (NASDAQ/VIVO, $16.78), which makes and sells products for medical conditions, such as gastrointestinal, viral, and respiratory infections. The company sells to hospitals, laboratories, research centers, diagnostics manufacturers, and biotech companies in more than 60 countries. Meridian demonstrates a good risk-to-reward pick and pays a 4.8% dividend yield.

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