Markets & Finance

Dividend Stars That Pay Off


By Numer de Guia, CFA In investing circles, 2004 may go down as the year of the dividend. Market pundits and investors alike appear to have rediscovered the charms of owning stocks that feature a steady cash payout. (Of course, more favorable tax treatment of dividend income and still-low long-term interest rates may have had something to do with it.)

But what are the most appealing dividend plays right now? High yields are nice, but we think investors should take a good look at a stock's underlying fundamentals first. So in this week's screen, we started out by looking for stocks with the potential for capital appreciation -- those ranked 5 STARS (strong buy) by S&P equity analysts. That means they're expected to outperform the overall market by a wide margin over the next 6 to 12 months.

BROAD APPEAL. You may be guessing the next step: Find the list of the 5-STARS with the highest dividend yield. That's logical, but this time we wanted to broaden our focus to take advantage of the breadth of sector coverage S&P offers. So instead, we selected the two 5-STARS stocks with the highest indicated dividend yields in their respective Global Industry Classification, or GICS, sectors.

The 20 stocks that turned up carry yields ranging from 0.43% to 9.86%, with an average yield of 2.75%. Here they are:

DIVIDEND STARS

Company

Ticker

S&P Sector

Fortune Brands

FO

Consumer Discretionary

Harrahs Entertainment

HET

Consumer Discretionary

Brown-Forman

BF.B

Consumer Staples

Colgate-Palmolive

CL

Consumer Staples

ChevronTexaco

CVX

Energy

Total

TOT

Energy

Annaly Mortgage

NLY

Financials

CBL & Associates

CBL

Financials

AstraZeneca

AZN

Health Care

Dentsply International

XRAY

Health Care

Burlington Northern Santa Fe

BNI

Industrials

Regal Beloit

RBC

Industrials

Automatic Data Processing

ADP

Info Tech

Hitachi

HIT

Info Tech

Cytec Industries

CYT

Materials

Dow Chemical

DOW

Materials

BCE Inc.

BCE

Telecom Services

Verizon Communications

VZ

Telecom Services

Endesa

ELE

Utilities

TXU Corp.

TXU

Utilities

De Guia is an analyst for Standard & Poor's Portfolio Advisors


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