The Best Dividend Stocks

Investors want dividends these days. Maybe it's a fad, maybe it isn't. Either way, I think it's a good thing as long as it lasts. Dividends have historically treated investors very well because they: 1. Are a key component of total equity returns, 2. Are an indicator of a company's financial health and 3. Provide downside protection in the form of "yield support. I could continue, but I'm going to assume you're already convinced of the importance of dividends. And in that case, what you're after is which dividend stocks you should be herding into your portfolio.

In a paper from Tweedy, Browne titled "The High Dividend Yield Return Advantage," the revered value manager brings together a collection of academic and Wall Street research that not only highlights the need for dividends, but extolls the virtues of higher-yielding equities. One of these reports in particular -- a 2006 paper from Credit Suisse titled "High Yield, Low Payout" -- caught my eye. By studying stock returns during the period between 1990 and 2006, the researchers came to the conclusion that investors should focus on higher yields, but not simply the highest yields. They found that the best performance was captured by investing in the highest-yielding stocks that also had the lowest dividend payout ratio.

Source: Motley Fool

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