Blog > Investment Strategies > Blog article: Value Investing: Dividend stocks
 | Email This Article Email This Article  | 

Value Investing: Dividend stocks

Posted January 10, 2008

"Fortunately, for value investors, 2008 is going to be our year. I'm betting on the long-term deep value stocks - around the world - that still have life despite the sub-prime fiasco." — Eric Roseman.

by Eric Roseman, The Sovereign Society

Baltimore – (TFN):  It did NOT pay to be a value investor in 2007. Last year, dividend income investment strategies based on value investing logged negative returns.

For example, the celebrated Dogs of the Dow strategy, which involves investing in the top 10 highest-yielding stocks in the Dow 30 index, has outpaced the market over the last 35 years.

But in 2007, the Dogs of the Dow value-based stocks declined 1.4%, mainly because of its exposure to Citigroup. This bank was trashed under the weight of its massive sub-prime and SIV (Structured Investment Vehicles) losses.

So what constitutes a value stock? These stocks typically harbor high free cash-flow, low stock-market multiples and solid balance-sheets. Also the investment herd generally ignores these stocks. Many of these stocks also pay rich cash dividends.

Overall, 2007 was a terrible year for value investors. Above-average dividends and cheap stock values failed to produce a positive return in a bizarre volatile environment combined with new highs for stocks.

Value Investing: Bank on dividends

Fortunately, for value investors, 2008 is going to be our year.

I'm betting on the long-term deep value stocks - around the world - that still have life despite the sub-prime fiasco. In fact, I'm even recommending a few banks this year. But I've pruned my recommendations to avoid most institutions with sub-prime exposure.

Of my top 10 value stock picks for 2008, only three stocks are banks. Two of those three banks have zero sub-prime exposure, but they pay dividends in excess of 5.5% per annum. The single bank that does have sub-prime exposure is also home to the most significant corporate insider buying in the financial sector. Several of this bank's directors have purchased over US$19 million in cash since late November.

What matters most to me amid the ongoing sub-prime fiasco is to find those high-yielding bank stocks around the world with little or no sub-prime exposure that ultimately won't chop their dividend payments.

I'm not sure I can say that about Citigroup or Regions Bank. That's why I'm not so sure the Dogs of the Dow strategy will post impressive returns this year because of its overweight in money-center banks.

But take that strategy worldwide…and well, that's another story.

Value Investing: A new way to play dividends

Last summer, I began to research a strategy based on the Dogs of the Dow formula. But instead of focusing on the top 10 highest-yielding Dow 30 companies, I decided to twist that strategy a bit and expand the universe to 500 global multinationals. The end result was a massive study conducted over eight weeks costing thousands of dollars, including paying for index-based research.

The end result is a global strategy combining large-cap multinationals accompanied by big dividends and foreign currency diversification. In 2007, my Dogs of the World strategy gained an eye-popping 19.8% in U.S. dollars. That return outpaced most global averages, except the high-flying emerging markets, which largely don't pay big dividends.

Next week, I'll be releasing my Dogs of the World recommendations - and the Dogs have never looked better!

You have to know the tricks of the trade to be a value investor in today's markets. Lucky for you, the Dogs of the World strategy works no matter what happens in the U.S. And you can learn more about my Dogs of the World recommodations and find out new ways to profit this year, even in a slowing economy.

****Make sure you sign up for our FREE TFN News Feed for breaking news, special reports and new financial videos. You can pick your favorite reader. Or if you prefer, you can have the feed delivered to your email. 


Related Articles


Posted by TFN-Investment Strategies · Filed Under Investment Strategies 

Comments