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Five Dividend Darlings For July 9

Posted: Jul 09, 2008 16:14 PM by Peter Cherewyk

Tickers in this Article: GKK, FDG, DSX, IRE, SFI

For decades, blue chip companies with high dividend yields have been affectionately referred to as "widow-and-orphan stocks" because they represented mature, established companies that paid reliable dividends that both widows and orphans could rely on to provide them with a steady income.

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Utility companies and industrial conglomerates are often placed in this category, but almost any large-cap company that has paid a sizable dividend consistently over the years can probably be counted on to continue doing so. (To learn more about the benefits of dividends, check out Dividends Still Look Good After All These Years).

Dividends Don't Rock The Boat
And investing in dividend-paying stocks definitely has its advantages. After all, stocks with high dividend yields generally offer more downside risk protection than growth stocks.This is because the steady cash payout these stocks provide give investors peace of mind when the going gets rough. So, dividend-paying stocks typically do not fall as fast or as far as high-flying growth stocks (that typically lack a regular dividend payout) when the market turns south. (For more on this, check out How Dividends Work For Investors.).

Here Today, Gone Tomorrow?
By extension, a portfolio of stocks with high dividend yields may experience less price volatility than a portfolio built entirely of sexy growth stocks, for example.

But it is important to note that a regular dividend will only help to keep a stock's price stable as long as the dividend payment keeps getting paid out. If a company decides to decrease its regular dividend amount, or cease it altogether, a stock that was once considered a dividend darling can easily take a nasty tumble. So, if you are looking to beef up your portfolio with some dividend darlings, usually the best place to start hunting is with stocks that have paid out increasing dividends consistently over a period of years. Generally speaking, the longer a company has paid out a high dividend yield, the more likely it is to continue doing so in the future.

With that in mind, here are five stocks with sizable current dividend yields that have a history of strong dividend growth as well:

Company Current Dividend Yield Market Cap (billion)

iStar Financial
(NYSE:SFI) 28.86% $1.621

Gramercy Capital
(NYSE:GKK) 24.21% $0.533

Fording Canadian Coal
(NYSE:FDG) 13.13% $11.41

Bank of Ireland (NYSE:IRE) 12.49% $7.810

Diana Shipping
(NYSE:DSX) 12.31% $2.054

Look But Don't Touch
IStar financial (NYSE:SFI) tops the list with a 29% current dividend yield but don't get completely caught up in the yield, its current ratio is a little low for my taste at 0.86. Also, iStar is in the financial sector, and specifically it's a company that focuses on commercial real estate, so it could come back to bite you given the state of the economy.

On June 30, 2008 Timothy O'Connor officially retired from the Executive Vice President and Chief Operating Officer positions which were assumed by iStar's President Jay Nydick. Also new board members and an accounting officer were appointed. Retirement of management can sometimes shake up a company in the short term, which might upset net income and reduce the dividend. And you would think that if the executives knew they were keeping a dividend like that in place, that they would buy a lot more of the stock for themselves. Currently, only 14% of iStar stock is owned by insiders. (To learn more, read Delving Into Insider Investments.)

Long Name, Great Bank
The Governor & Company of the Bank of Ireland (NYSE:IRE) is a company that provides banking services to commercial and industrial companies mostly in the U.S, the U.K. and Ireland. There are many reasons to like this company. It has a large market cap; it has exposure to markets outside the U.S., it has a high dividend yield, and finally it has a solid P/E of 2.73 which is about one-quarter the industry average. One more thing, its payout ratio is 23% which demonstrates a fantastic ability to support the dividend with earnings.

Dividends for the Long Haul
Despite the cliché, you certainly don't have to be a widow or an orphan to appreciate the staying power dividend-paying stocks can add to your portfolio over the long haul. Keep your eye on these high dividend yield stocks and join me (PeterAB) in the FREE Stock Picking Community.

To learn more about the compound nature of dividend returns, check out The Power of Dividend Growth.

By Peter Cherewyk

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