The foundation of investment success lies in value identification, asserts Kelley Wright, a blue chip and dividend investing specialist and the editor of Investment Quality Trends.
If the sole purpose of investing is to realize a return on investment, there is nothing more immediate and fundamentally representative of value and a return on investment than the receipt of dividends.
Of the three fundamental measures of value, price-to-earnings (P/E), price-to book value (P/B), and dividend yield, the dividend yield, which exists only if there is a receipt of dividends, is the only measure of fundamental value that is tangible. This is to say that you can’t spend or reinvest a P/E ratio or a P/B ratio; you can only spend or reinvest the cash dividend.
Fundamentally then, the underlying value of a stock lies within its dividend, which determines yield. What separates the enlightened investor from all others is the knowledge of where the dividend yield offers good historic value.
This is to say that there is a historically repetitive yield area where the dividend yield suggests greater upside price potential than less downside price risk, we call this Undervalue.
Conversely, there is a historically repetitive yield area where the dividend yield suggests less upside price potential and greater downside price risk, we call this Overvalue. Dividends, yield, Undervalue, Overvalue, this is what is important!
Is there uncertainty in the market? Always. So, it begs the question, how does one get past the uncertainties and stay focused on their goals and objectives?
In a world of unanswered questions what I do know is this; great, high-quality companies with long track records of performance, over time, increase their dividends and reward shareholders with higher stock prices. To be sure the journey is often bumpy, investing is no greeting card commercial. At the end of the day though, investing in the stock market really is about those two little words; know value.
Whether you are looking to build a portfolio from scratch, are partially invested and looking to add new positions, or are fully invested and merely in need of some affirmation and hand holding, The Timely Ten represents our top ten recommendations from the Undervalued category as of each issue.
Historically, investors that have acquired stocks simply because they are in the Undervalued category have been handsomely rewarded over time. Here are our most recent Timely 10 stocks:
Omnicom Group (OMC) — yielding 3.93%
Philip Morris Int’l (PM) — yielding 5.45%
First Merchants Corp. (FRME) — yielding 2.84%
3M Company (MMM) — yielding 3.39%
Cardinal Health (CAH)— yielding 4.05%
Walgreens Boots Alliance (WBA)— yielding 3.89%
Dow, Inc. (DOW)— yielding 5.25%
Int’l Business Machines (IBM)— yielding 5.35%
Renasant Corp. (RNST) — yielding 2.45%
Merck (MRK) — yielding 3.76%