There are many investors around the world that want to know how to find the top stocks to buy in these difficult economic times. This is especially true with the recent market sell-off in the summer of 2011 with a potential European debt crisis. It looks like there is a small chance of another worldwide financial crisis if Greece and Italy don’t get backstopped. However, this time is different than 2008 for a lot of reasons, and the US banks are certainly much better capitalized now. I do not predict another recession or financial collapse is around the corner, and I believe the recent market weakness is a very good time to add quality dividend stocks to your retirement account.
Most investors don’t know how powerful investing in solid dividend stocks that pay high yields year after year can be. For example, dividend paying stocks produced an average annual return of over 10% from 1970 through 2005. That is six percent more than non-paying stocks returned in that same period. How important is another six percent annualized over 25 years? Instead of ending up with $200,000 from an initial $50,000 investment, you would have created enough to be a millionaire. Furthermore, investing in some of the dividend stock picks we are suggesting here could provide both strong dividends and double digit growth over the next five or more years. That could produce a return of over 20% annualized.
In my opinion, especially with today’s market uncertainty and during a slow recovery cycle, investors need to own quality stocks that consistently pay cash dividends. It is simply a sound investing strategy during good and uncertain times. Everyone seems to have forgotten about these dividend stocks in the past decade, but dividends are the main way you make money in stocks over the long term.
If you’re going to get wealthy in stocks, one way is to get lots of dividends, and then to reinvest those dividends. Referring to a study of the period from 1872 to 2000 in his book, Behavioural Investing, analyst James Montier showed that dividend yields provided over 50% of the total return on equities. There is no question that the top stocks to buy for long term wealth creation are high quality dividend ones.
I recommend using several important fundamental criteria when assessing strong dividend stocks. The first one is whether the company has a Price to Earnings Ratio (PE) < 14. The historic market average is about 15 and the modern market PE is about 17. So to really have some price upside, the PE ratio should have room to get back up to the historic or modern ratio average. The second critical one is to show steady growth over time with strong earnings year over year. The third is considered a big plus, and it is for the company to have a history of consistently raising the dividend every year. A few other criteria that may be useful are looking for companies with a Price-to-Book Ratio < 2.0 (historical average is 1.94) and a Price-Sales Ratio < 1.0 (historical average is 0.86).
For this article, I focused my efforts on finding a diversified group of 10 very solid dividend stocks suitable for anyone’s retirement portfolio. These companies are fundamentally sound and they will deliver consistent income and steady growth for years to come.
10 Top Dividend Stocks to Buy with Value, Steady Growth, and Consistent Dividends:
1) BBL – BHP Billiton (PE < 11)
2) BMS – Bemis Co Inc (PE < 12)
3) COP – Conoco Phillips (PE < 8)
4) DD – E.I. du Pont de Nemours and Co. (PE < 10)
5) EMR – Emerson Electric Co (PE < 12)
6) MT – Arcelor Mittal (PE < 6)
7) NSC – Norfolk Southern Corp (PE < 11)
8) PEG – Public Service Ent Group (PE < 13)
9) UL – Unilever (PE < 13)
10) UTX – United Technologies Corp (PE < 12)
Every company on this list has solid fundamentals and most carry a high dividend yield of 3% or more. Furthermore, their projected value in 1 year has a minimum of 20% upside. Study these companies and their balance sheets and learn how to find these type of investments on your own.
The bottom line is that an investor should do very well by investing in top dividend stocks both now and in the future. Keep looking for more of our posts on some good stocks to buy in Brazil, China, and in other countries.
And, of course, good luck on growing your retirement account in the future.