By Jonas ElmerrajiBALTIMORE (Stockpickr) -- It's a market like this one that reminds us of just how important dividends are. After all, even when the market's outwardly irrational, stocks that pay consistent dividends guarantee investors some kind of returns on their investments.
Income investing is a philosophy that's been somewhat pushed aside since the tech boom of the late 1990s eschewed old-school dividend-payers for high-growth companies that plowed back their earnings to build their businesses. But in the two recessions that followed the dot-com bust, Wall Street has gotten an unpleasant reminder of just how profitable dividend-paying stocks can actually be.
Historically, companies that pay higher dividends materially outperform those that don't. In the last 36 years, dividend stocks outperformed the rest of the
by 2.5% annually. And they outperformed nonpayers by nearly 8% each and every year, according to a study from NDR. That means that when a company actually increases its dividend, investors would do well to take notice.
With last week being one of the biggest in 2010 for dividend increases -- 32 companies hiked their payouts to shareholders -- let's take a look at
may be best known for its beverages, but this food giant is far from a one-trick pony. The company owns food brands ranging from Quaker to Doritos, making it the world's largest snack food company and giving it control of close to half of the U.S. savory snack market. The first half of 2010 has been kind to Pepsi's shareholders, and with a 6.7% dividend increase last week, Pepsi's gains could extend well into the second half of the year.
While recessionary cutbacks increased the competition facing Pepsi's brand portfolio, it's nothing new to the company. Top rival
remains the big dog in the non-alcoholic-beverage industry, but Pepsi began diversifying its food portfolio decades ago, choosing instead to get exposure to a slew of complementary products, from fast food to potato chips. Ultimately, it's a strategy that's paid off, granting Pepsi a league-leading position in many of the categories it operates in. With excellent cash generation abilities, expect Pepsi to continue to reward its shareholders with generous dividend hikes.
That's what shareholders of the
(VFINX) are hoping for. The fund, which tracks the stalwart S&P 500 index, is one of Pepsi's largest institutional holders.
are among the fund's other key holdings.
Although oil prices are seeing increased pressure on the commodities floor, shares of
haven't been any the worse for wear so far this year. The $68 billion company has considerably beaten the spot price of the black stuff in the last month or so. And with a 15.2% dividend hike, brining the company's quarterly payouts to 38 cents per share, investors are enjoying even higher yields this week.
Occidental essentially built its business operating legacy oil and gas properties throughout the world. But the really interesting ones are here at home, where the company has built itself into a specialist in difficult oil recovery at wells that are seeing diminishing production. With the considerable cost of exploration, that recovery acumen is being put into use at new locations -- particularly those in the Middle East. Another side effect of legacy assets is one of the most attractive balance sheets in the industry, a factor that should encourage growth and keep those dividends flowing for the foreseeable future.
Among Occidental's biggest owners is the
(DODGX), a three-star-rated fund that holds large-cap value stocks such as
With a 25% increase in shareholder payouts last week, dividend payouts are nothing new for
, a diversified media company whose core business is providing cable television services to consumers. But could high yields be the downfall of this New York-based stock?
Cablevision Systems is a big believer in the old adage that location is everything. With a principal service area in the affluent New York metropolitan area, Cablevision enjoys a higher-margin product mix than many of its larger competitors. That said, though the company isn't as well diversified as many of its peers. Cablevision has a leveraged balance sheet and a history of financing its dividend payouts with additional debt. Ultimately, this company is going to have to go on a diet if shareholders want to continue to cash their dividend checks.
Still, good portfolio managers are making a bet on Cablevision -- and when the smart money talks, Wall Street listens. One of those talkers is Daniel Martino, manager of the
(PRMTX), which holds Morningstar's coveted five-star rating. Other holdings in the fund include
For the rest of this week's dividend stocks, check out the
And if you haven't already done so,
today to create your own dividend portfolio.
-- Written by Jonas Elmerraji in Baltimore.
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Jonas Elmerraji is the editor and portfolio manager of the
Rhino Stock Report
, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including
, and has been featured in
Investor's Business Daily