Structure depends on strategy; strategy is determined according to events - Sun Tzu
NEW YORK (TheStreet) -- Long-time readers of my articles know I believe every buy-and-hold portfolio needs dividend stocks. The right dividend stocks for growth and to mitigate the ups and downs caused by daily headlines. The surest path I know to wealth creation is buying above-average yield companies that are likely to increase their dividends year after year.
Be careful, though -- simply buying the highest-paying stocks can cause your portfolio to step in what's known as a dividend trap. That's a stock that appears attractive at first but you quickly find out why when the company's management decides to reduce or eliminate its dividend payments.
I present my latest dividend stars that should appreciate and pay you while you wait within minimal concern that the dividend flow will dry up.
Big 5 Sporting Goods (BGFV) - Get Report operates as a sporting goods retailer in the western United States. Big 5 Sporting Goods Corporation was founded in 1955 and is headquartered in El Segundo, California. It has a market cap of $264 million and trades an average of 240,000 shares a day.
Price To Book: 1.4
Payout Percentage: 40%
Dividend Amount: 10 cents
This company is the beneficiary (or current victim depending on your point of view) of last year's gun control scare. The shares took a considerable hit after reporting earnings on April 30th, and I think are poised to recover. In fact, Big 5 is now a small 9 future earnings multiple. Moreover, the dividend yield tops 3.3%. For my exact entry and profit target's, I wrote a Real Money Pro post that you can use as a guide.
Fears of nationwide gun control regulation resulted in a significant spike in firearm and related sales. Since the changing of the tide, the year-ago quarterly comparable sales may at first glance give the inattentive an impression that the company is on hard times.
That's a problem with one-off sales spikes. Once revenue normalizes, new investors are hard to find because either stock scanners filter them out or potential shareholders shy away because of declining year-over-year expectations. Investors willing to dig deeper will quickly realize this company is a long-term buy that will pay you to leave it in your portfolio.
Large inventory levels at Big 5, Cabela's (CAB) , and Dick's Sporting Goods (DKS) - Get Report are and will continue to create headwinds through this quarter, but should be worked through by this fall. This sets up the key holiday shopping season as one that will once again enjoy pricing power and exceed the previous year's period.
In the meantime, enjoy the dividend while you wait.
Price To Book: 2
Payout Percentage: 55%
Dividend Amount: 22 cents
Admittedly, I have reservations about GE reducing its exposure to finance-related activities, but the environment isn't the same and the days of easy money are over. Last month the company filed to spin off its credit card business through an IPO.
The credit card division is anticipated to raise $3.5 billion and the cash helps pay for other acquisitions including a potential $13.5 billion purchase of French Alstom. If successful, it would mark the largest purchase in GE's history.
GE is a bet on the world economy. As long as we don't sink into another great depression circa 1930s, the oversized 3.3% dividend payment should remain solid. I was a shareholder after the company halted the dividend to preserve cash and shares traded for under $7.
There was real fear on Wall Street if GE would make it through to the other side. At $26.60 a share, those that held fast were rewarded. Since the depths of fear, the company has shored up its balance sheet and investors can count GE dividends as stable for long-term conservative portfolios.
The majority of analysts believe General Electric continues to offer a buying opportunity. 8 of the 15 analysts covering the company give a buy recommendation. Some (7) are taking a more cautious approach, and rate it a hold. As of the last update I have, none of the analysts are recommending selling.
In the last 12 months, the shares have modestly moved higher. The one year return is 3.9%, and the average analyst target price for General Electric is $29. In December, the price touched $28, and I think it breaks above within the next 14 months.
Short sellers are not interested in betting against this one. Short interest is a non-factor at a rate of 0.7% of the float.
Bristol-Myers Squibb (BMY) - Get Report, a biopharmaceutical company, engages in the discovery, development, licensing, manufacturing, marketing, distribution, and sale of biopharmaceutical products that help patients prevail over serious diseases worldwide.
Price To Book: 5.5
Payout Percentage: 80%
Dividend Amount: 36 cents
Bristol-Myers Squibb has a history of raising the dividend about 4 cents a year since 2007, but that may soon be coming to an end. The payout ratio will likely exceed 80% by this time next year without an increase in the amount and without a miss on estimated earnings.
I'm including this one as reference so you can review what could turn into a dividend trap. The company is on solid footing and one of the best known big-pharmaceuticals, but unless you dig further than the surface level, you may set yourself up for disappointment with this one.
The five-year trend for revenue and free cash flow is falling. At the same time, the debt level is trending upward, resulting in a book value per shares under $10.
The shares became fully valued after climbing 28% in the last year. If you're already long, you may want to consider selling covered calls against some of your shares and or taking at least part of your money off the table to lock in some gains.
The company currently pays a 2.8% dividend yield, but I think the earlier two companies offer a higher yield with greater stock appreciation ability.
At the time of publication, Weinstein had no positions in stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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