1 Winning Dividend Investment for Year's End
With just 24 days left in the year, investors are looking to the future. And what better way to kick off 2014 than by adding two high-quality dividend stocks to your portfolio? After all, dividend stocks tend to outperform non-dividend-paying stocks over the long haul. Here's one stock that will reward investors in the year ahead, regardless of volatility in the market.
Reliable payouts are key
Investing for income can be extremely rewarding when you pick the right stocks. However, too often, investors make the mistake of chasing yields. A high-yielding dividend stock such as Windstream , for example, looks attractive with a dividend yield north of 12%. However, a closer look reveals a payout ratio of more than 500%. That means Windstream pays out more than 100% of its cash to shareholders.
On top of that, Windstream has a massive net debt load of $8.8 billion, which could weigh down the stock going forward. As a result, it's only a matter of time until Windstream will be forced to slash its dividend or cut it altogether. Fellow Fool Dan Dzombak summed it best when he said, "Investing in Windstream looks like picking up quarters in front of a steamroller; sooner or later you're going to get crushed."
That's where Apple comes into play -- it offers investors reliable payouts backed by strong financials.
Apple of your eye
Unlike Windstream, Apple has a reliable payout ratio of just 29%. That said, the tech titan's dividend yield of 2.1% is also well below that of Windstream. However, investors can rest assured that Apple will be able to pay its shareholders for years to come, particularly thanks to the company's massive cash pile. For the quarter ended in September, Apple reported a whopping $147 billion in cash.
The tech giant paid its first-ever dividend last year and issued $10 billion in stock buybacks. Apple has since raised its payout and now rewards shareholders by dishing out about $2.8 billion in dividends each quarter -- for an annual dividend of $12.20.
As part of the company's expanded capital return program, Apple also added another $50 billion onto its stock buyback plan earlier this year. By taking shares off the market, stock buyback programs such as this automatically increase the value of the stock. In addition, given Apple's massive cash hoard, activist investor Carl Icahn is pushing for an even bigger payday for shareholders. Icahn's latest move included filing a shareholder proposal that will see shareholders vote on a larger buyback. With shares of Apple now trading around $572 a pop, Icahn's involvement underscores the overall strength in Apple's business. There's also Apple's recent deal with to consider in the year ahead. In fact, the tech giant's latest deal with China Mobile could put an additional $10 billion in Apple's coffers in 2014.
More dividend stocks for 2014
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notability of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.
The article 1 Winning Dividend Investment for Year's End originally appeared on Fool.com.Fool contributor Tamara Walsh owns shares of Apple. The Motley Fool recommends Apple and owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.