U.S. dividend stocks with attractive yields – and prices

With the big gains in U.S. stocks over the past few months, many dividend-paying companies now appear expensive. We wanted to see whether there are still reasonably priced stocks with attractive yields. Craig McGee, senior consultant at CPMS Morningstar Canada, first checked to see how pricey the market looks. Using the CPMS database, he calculated that dividend-paying stocks in the S&P 500 were trading for 14.7 times their adjusted operating earnings over the past four quarters, based on values as of the end of August.

Mr. McGee back-tested the strategy assuming that an investor held equal dollar amounts of each stock until a stock fell below the 30 per cent mark, at which point it was replaced with the best ranking alternative. Since Dec. 31, 1993, this strategy would have generated an annualized return of 12.1 per cent, versus 8.7 per cent for the S&P 500 total return index. Remember, though, that past results don’t necessarily predict future success.

Source: Globe and Mail

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