Dividend-paying Stocks

Dividend-paying Stocks, Brighter economic prospects are attracting U.S. investors to shares of foreign companies, but most of the attention is being given to big multinational players that happen to be based outside of the U.S. As a result, many companies that lack such global clout are being neglected even though they offer substantial dividends and value.

Stock investors should focus on the quality of a company’s earnings, says Bob Olstein, manager of Olstein All Cap Value Fund. He talks with Jonathan Burton about two favorite buys.

The top foreign stocks held by U.S. mutual funds that invest overseas includes the American Depositary Receipts of well-known enterprises such as Royal Dutch Shell PLC /quotes/zigman/379078/quotes/nls/rds.a RDS.A -1.73% /quotes/zigman/359915 UK:RDSA +0.13% , America Movil SAB de CV /quotes/zigman/276628/quotes/nls/amx AMX -0.72% , Teva Pharmaceutical Industries Ltd. /quotes/zigman/64731/quotes/nls/teva TEVA +0.18% and Vodafone Group PLC /quotes/zigman/101873/quotes/nls/vod VOD -1.56% /quotes/zigman/421253 UK:VOD -0.91% , according to investment researcher Morningstar Inc.

“These stocks are all in sectors that are cyclical and kind of in favor right now,” said Allan Nichols, a Morningstar senior equity analyst. Most, he added, pay “decent dividends and generate stable cash flows.” Shell’s dividend yield recently was 4.7% and American Movil’s was 1.1%, while Teva yielded 1.8% and Vodafone 3.5%.

American Depositary Receipts, or ADRs, are an easy, cost-effective way to own non-U.S. stocks. These shares of foreign companies are listed on U.S. exchanges, offering greater transparency, no foreign transaction costs and decent trading liquidity.

Highest Dividend Paying Stocks

Highest Dividend Paying Stocks, A growing chorus says dividend-paying stocks have grown too expensive. While true in general, opportunities still exist.

And the conditions that drove masses of investors into high-quality dividend-paying stocks — that is, low bond yields and high volatility — should continue to make them attractive.

In flocking to dividend paying stocks, “many investors have to some degree lost sight of the valuations,” says Larry Glazer, managing partner at Mayflower Advisors, an independent adviser in Boston. “Many of the stock prices of the higher dividend-paying names appear to be ahead of their valuations at this point.”

Glazer has been an advocate of dividend-paying stocks for years. Since 1926, 45% of the total return of the Standard & Poor’s 500 index has come from reinvested dividends, according to S&P Capital IQ.

He sees the need to be more selective now. “When the herd takes over, it’s scary and dangerous,” he says. Investors should keep in mind, too, that some of the big blue-chip names, while stable and high quality, have pension problems now. It’s ironic that investors are embracing them partly due to low yields, but those yields are also creating pension shortfalls, Glazer says.

Last year’s leaders, such as utility stocks, aren’t likely to be this year’s winners, but opportunity can be found within some of the areas that lagged last year. That includes some in the more cyclical, industrial sector, particularly some of overseas companies, Glazer says.

Sam Stovall, chief equity strategist for S&P Capital IQ, believes a tight focus on company quality is needed. He thinks there may still be some utility stocks worth buying, even after that sector’s top performance in 2011.

Mark Luschini, chief investment strategist at Janney Montgomery Scott, sees both utilities and consumer staples as overvalued, but believes investors could move some sidelined cash or rotate money from bond funds into other sectors with lots of high-dividend-paying stocks, such as the energy and health care.