Tuesday, August 23, 2011

5 Dividend Stocks With Yields In The Sweet Spot

Are you from another planet? That's the look I got several weeks ago when I admitted to a group of colleagues that I had not been following the daily gyrations of the stock market. To further confound the group, I told them I still wasn't concerned since I didn't plan on buying anymore stocks until the the following week.

Needless to say, the group was licking their wounds and contemplating pulling out of the market "until things settled down." I thanked them as I left the room, because it weren't for such emotional investors, we would not be able to buy stocks at cut rate prices.

Fear Is Your Friend

Consider the One-Day-Sale that resulted the day after S&P downgraded U.S. debt. I was able to pick up Chevron (CVX) around $91, when just 7 days before it was trading at $105. This drop was not rational.

As a result of the downgrade, people were fleeing the market into the debt that was downgraded. When cooler heads prevailed, most people figured out the a debt downgrade had nothing to do with oil's long-term balance of supply and demand. CVX's price began to rise and on August 15th it closed at $99.10, only to fall back to $93.

If fear is your friend, patience must be your guide. I have been waiting since April 2009 to add to my CVX position.

Lower Prices, Higher Yields

Investors in dividend growth stocks are not looking to make a quick buck on an emotional and unbalanced market. Instead, we want the higher yields that the lower prices bring us.

In the case of CVX, I was able to lock in a 3.4% yield on cost in a stock that had not been a buy for me for quite some time. CVX continues to drift in and out of the buy zone. When adding to this position, I have to wait for emotional panics and buy when others are fearfully selling.

Higher Yields On Blue Chip

Here are several dividend stocks with higher current yields than their August 1st closing yield:

Medtronic Inc. (MDT)
August 1st Yield: 2.8% | Current Yield: 3.1%
Medtronic Inc.is a global medical device manufacturer has leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management, and other medical markets.

General Dynamics Corp. (GD)
August 1st Yield: 2.8% | Current Yield: 3.3%
General Dynamics is the world's fifth largest military contractor and also one of the world's biggest makers of corporate jets.

August 1st Yield: 2.6% | Current Yield: 3.5%
Aflac Incorporated provides supplemental health and life insurance in the U.S. and Japan. Products are marketed at work sites and help fill gaps in primary insurance coverage.

Eaton Vance Corp. (EV)
August 1st Yield: 2.7% | Current Yield: 3.4%
Eaton Vance Corp. is a Boston-based holding company that is primarily engaged in investment management.

ConocoPhillips (COP)
August 1st Yield: 3.7% | Current Yield: 4.2%
ConocoPhillips Co. was formed in 2002 when Phillips Petroleum and Conoco merged and is now is the fourth largest integrated oil company in the world.

Harleysville Group Inc. (HGIC)
August 1st Yield: 5.0% | Current Yield: 5.6%
Harleysville Group Inc. underwrites a broad array of personal and commercial coverages. These insurance coverages are marketed primarily in the Eastern and Midwestern United States.

The Paradox of Dividend Growth Stocks

Investing in dividend growth stocks is about strategically selecting appropriate times to buy, but not timing the market. It is about buying with the intention of holding forever, but always checking your holdings to ensure the companies' fundamentals have not deteriorated.

When I listen to talking heads on most financial shows, it is easy for me to believe I am from another planet. Here's hoping for another irrational/emotional reaction that drives the market down!

Full Disclosure: Long CVX, MDT, GD, COP, HGIC. See a list of all my dividend growth holdings here.
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