Investors can sidestep risk by pursuing income from stable companies, such as Vodafone and GlaxoSmithKline, that generate reliable payouts rather than one-off, show-stopping dividends.
In terms of absolute returns, these 100 stocks would have cumulatively returned just over 20% to investors in the 12 months to January 31, 2011, if they were weighted using a free float adjusted market capitalisation, according to back-tested data.
Almost three-tenths (28%) of these 100 companies fall within the services industry, followed by the financial services industry at almost 14%, and then by capital goods and consumer non-cyclical stocks. Consistent, top-yielding stocks in America broadly fell within the same industries. It is important to note that the stocks mentioned above have not been selected on the basis of their industry or sector: this is a bottom-up methodology based on the consistency of their dividend payments, which should be the basis of any stock selection strategy focused on stable, high dividend-yielding stocks. Any paradigms to emerge from their selection may shed interesting momentary insights into a particular industry, useful in supplementary analysis, but the true predictor of future performance is detailed analysis of a company’s dividend payments.
This research would be difficult for individual investors to carry out as it involves analysing the annual and quarterly reports of companies over a period of five years or more. But such a level of expertise is available via fund managers and index-tracking products.
Investors should remember the real underlying value of dividends – a reliable source of stable income – as they open their eyes to the true significance of what they can achieve.