This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Start Your Own Dividend Fund and Beat the S&P 500

BOSTON ( TheStreet Ratings) -- This month, I'm starting the Dividend Stars Portfolio, selected from a review of companies poised to provide excess returns over the next 12 to 24 months. The diversified 13-stock portfolio offers investors growth and income.

My Dividend Select screen picks companies that generate above-average dividend yields and show the potential for share-price appreciation. The monthly screen, begun Feb. 14, lists 100 companies that have collectively outperformed the S&P 500 by 4.2 percentage points. (Sign up for our Dividend and Income Newsletter.) The Dividend Stars Portfolio is derived from the Dividend Select screen.

This is an opportune time to assemble your own portfolio of stocks. Interest rates are so low, you're probably not making much on fixed-income securities such as certificates of deposit (CDs) or government bonds. As for stocks, even the best fund managers are producing middling gains because of seesawing markets, and there's a widespread notion that dividend-paying shares, such as those filtered by our screener, are the safest bets out there.

Today I'm highlighting two of the stocks featured in the Dividend Stars Portfolio. There will be more to come over the next few months.

Mattel (MAT - Get Report) -- dividend yield: 3.30%

Mattel, the world's largest toy maker, holds a portfolio of the most iconic brands in the world. The company's top five includes Barbie, Hot Wheels, American Girl, Fisher Price and its newest acquisition, Thomas and Friends. Growth has been impressive in the face of a slowing economy here at home and in Europe, where Mattel collects 24% of revenue.

The company's acquisition of HIT Entertainment (which includes Thomas and Friends, Barney and others) makes sense, especially given management's proven expertise at developing and expanding brands (e.g., Monster High, American Girl). The European exposure concerns me, yet is on par with competitor exposure (Hasbro is at 26%), and toys historically have been somewhat bulletproof to economic malaise.

Management has been committed to returning cash to shareholders in the form of dividends and share repurchases. Mattel repurchased 16.3 million shares in the first nine months of the year. In addition, dividends increased 11% from 2010.

The company is trading at less than historic valuations and at similar levels to competitor Hasbro, despite superior growth and near-flawless execution by management over the past several years. With Mattel expected to post earnings per share of $2.36 in 2012, I use a historic price-to-earnings multiple of 14 to reach a 12-month target price of $33, nearly 18% upside from today.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
INTC $30.81 0.00%
MAT $23.08 0.00%
MSFT $40.72 0.00%
PEP $95.09 0.00%
PG $82.32 0.00%

Markets

DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs