Stocks that have a good dividend yield not only give you another path to increasing your assets, but also work well when you reinvest your dividends after each payout into the purchase of more shares. This continually increases the worth of your overall portfolio, which is why many investment advisors recommend diversifying this way. Many slower-growing blue chip stocks pay good dividends and have a solid track record. Some stocks pay great dividends to cover for poor price performance, though, so it is critical that you choose your dividend plays very carefully. Here are three that look like great plays in our current market.
Vodafone Group Plc (ADR) (NASDAQ:VOD)
Across Europe, Vodafone Group Plc (ADR) (NASDAQ:VOD) is one of the biggest cell phone carriers. It is a household name, similar to Verizon Communications Inc. (NYSE:VZ) in the U.S. You can’t get off a plane anywhere in Europe without having your eyes assaulted by Vodafone Group Plc (ADR) (NASDAQ:VOD) billboards – good thing they are tastefully done. Looking at Vodafone Group Plc (ADR) (NASDAQ:VOD)’s long-term dividend payouts, they have certainly been as reliable as Old Faithful. And analyst consensus is that Vodafone Group Plc (ADR) (NASDAQ:VOD) is a Strong Buy. One reason that Vodafone Group Plc (ADR) (NASDAQ:VOD) is such an attractive bet is because of its considerable take in U.S.-based Verizon Communications Inc. (NYSE:VZ) Wireless. This stake, worth $106 to $136 billion, is considerable and is driving rumors that Vodafone and Verizon Communications Inc. (NYSE:VZ) Wireless could merge. Another possible scenario is that Verizon will acquire Vodafone’s stake in Verizon Communications Inc. (NYSE:VZ) Wireless in a move to unify the company. In any event, this speculation has driven Vodafone’s price close to the 52-week high of $30.80, but the upwards movement doesn’t show signs of stopping. A price target of over $33 is a realistic goal for this stock. Add this to a dividend yield of over 5%, and you have a winning pick.
An even higher dividend yield, 7.58%, is offered to shareholders of Suburban Propane Partners LP (NYSE:SPH). Most Fools are bullish on this energy stock; it carries a CAPS rating of four out of five and has many positive comments. Why? Aside from the strong dividend payout, Fools know that the recent weather tragedies mean that many Americans are going to stock up on propane and alternatives to traditional electricity to prepare for the inevitable.
One possible red flag on this stock is the P/E ratio of 26.03, which is higher than the rule-of-thumb 20, but not terrible. Most Fools see this as indicative of a volatile propane market rather than any issue with the company. Experts are predicting a $0.10 per share dividend increase per year until 2016, making this high dividend player even more of a solid bet. Overall, the fundamentals look good for this company and it appears to be well-managed with a bright future ahead of it.
Arlington Asset Investment Corp (NYSE:AI) is an investment banking firm with low debt, a dividend yield of 12.7% , and a solid strategy of capitalizing on the housing boom by investing in mortgages and mortgage securities. Rated as a “Buy” by Thestreet.com, this company has increased its net operating cash flow by 422.78% to $11.66 million when compared to the same quarter last year. Pretty impressive! But offsetting this increase is a 70.3% decrease in revenue for the same period – this may be because the mortgage industry as a whole tends to be pretty volatile, but it bears some watching. Another possible pitfall for this stock is the fall out from the mortgage crisis, some claim that we just have a period of calm between storms. Nevertheless, this dividend yield is not be be sneezed at, and the low debt ratios as well as strong management should buoy this company forward if or when the waters get rough.
Arlington Asset Investment Corp (NYSE:AI) is more of a risk than the other two stocks mentioned in this article. The smart Fool will tread carefully and pick the right time to enter this investment, preferably by watching revenue levels and listening to the next investor conference call.
The bottom line
In summary, dividend stocks are a great way to diversify your portfolio, and they can be great income builders. But it is important to choose companies that are also strong in other ways. Here are three smart picks, presented in order of risk and return. Happy Foolish Investing!
Brenda Johnson has no position in any stocks mentioned. The Motley Fool recommends Vodafone. Brenda is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Great Dividend Plays for Long-Term Growth originally appeared on Fool.com is written by Brenda Johnson.
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