I'm always on the lookout for the next home run stock. From time to time, I like to look back and see what I can learn from the best- and worst-performing stocks over the long term. I make sure to key in on dividend stocks, because they have a history of outperforming the market.
By examining the top performers of the last 11 years, I want to find traits that the top performers of the 2010s should also have. I sought stocks with a market cap greater than $1 billion and steady annual dividend payments, and I excluded royalty trusts or master limited partnerships, which are taxed differently. Here's what I found:
Return Since Millennium
HollyFrontier (NYS: HFC)
Raven Industries (NAS: RAVN)
Precision Castparts (NYS: PCP)
Southern Copper (NYS: SCCO)
Lufkin Industries (NAS: LUFK)
PotashCorp (NYS: POT)
Cliffs Natural Resources (NYS: CLF)
World Fuel Services (NYS: INT)
Valhi (NYS: VHI)
Cabot Oil & Gas (NYS: COG)
Source: Capital IQ, a division of Standard and Poor's. Return from Dec. 31, 1999-Aug. 23, 2011.
HollyFrontier was the top dividend stock of the millennium so far, with a return of 5,016.3%. So what do all these stocks have in common?
Market Cap on Dec. 31, 1999
Cliffs Natural Resources
World Fuel Services
Cabot Oil & Gas
Source: Capital IQ.
They were all small-caps or mid-caps at the beginning of the millennium and were paying dividends.
So why have these companies' stocks done so well? You'd figure Wall Street would have caught on. But analysts only have so much time, so they ultimately overlook many small-cap stocks. That creates a perfect opportunity for enterprising investors to capitalize on Wall Street's lack of vision by getting in on companies on the cheap, before the rest of the market has discovered them.
One small-cap stock for the rest of the millennium!
Sorry -- that's not happening. I highly doubt that any companies around today will be with us in the year 3000. The technological rate of change is too fast, and historically, the odds aren't good. According to Wikipedia, only 11 companies that were around 1,000 years ago are still with us today. Four of them are Japanese hotels.
While we can't know for sure what the best dividend stock this millennium will be, I asked our team of investment analysts for their favorite small-cap dividend stock. They recommended Seaspan (NYS: SSW) .
CAPS Rating (out of five stars)
Seaspan is a container ship company that has been greatly expanding its fleet. Unlike many other shippers, Seaspan operates through long-term, fixed rate contracts that average 11 years. These enable it to profit without worrying about fluctuations in dayrates, a key worry for many other shippers.
By March of 2012, the company will own 68 container ships, which it paid for by taking on more debt and cutting its dividend. That cut pummeled shares, creating an opportunity for enterprising investors to get in on the cheap. Seaspan plans to restore its dividend as it brings its expanded fleet online. Since the cut, the company has already raised its payout by 87.5% to $0.75 annually, with more increases are on the way.
With a newly increased fleet, the company expects its cash available for the dividend to run around $300 million per year. Assuming a payout ratio of 50%, this would triple the dividend's current amount, an increase that would likely lead to related gains in share price. In the meantime, at today's prices, the dividend is worth a 6% yield -- a hefty payout to collect while you wait for the shares to appreciate.
Your next step
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At the time thisarticle was published Dan Dzombakcan be found on his twitter account:@DanDzombak. Hedoesn't own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Seaspan. Motley Fool newsletter services have recommended buying shares of Precision Castparts. Motley Fool newsletter services have recommended creating a write covered straddle position in Seaspan. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
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