Big Dividend Hurt Chance Of Finding Winner In Q3
While the Nasdaq rose 6% in the third quarter, some well-chosen stocks did much better.
Were there big gainers among dividend stocks? Yes, but the odds of finding a big gainer were inversely proportional to the yield.
IBD ran a screen for Q3 gainers that aren't low-priced or thinly traded. The Q3 gain had to be at least 12%, i.e., about double the Nasdaq.
The variable was the yield, and it illustrated a reality: If an investor buys only big-yield stocks, he or she sharply reduces the chance of finding a big winner.
The screen's results:
Dividend yield of 4% or more: Only 14 stocks made this screen.Rentech Nitrogen ( RNF ) led with a 41% pop. More than a third of the other stocks were lowly rated stocks bouncing off lows.
Gamestop ( GME ), for example, rose 14% in Q3, but it remains 19% off its high. Of the 14, only four sported an EPS Rating of 80 or better.
Dividend yield of 3% or more: Sixteen additional stocks made this screen, bringing the total to 30. However, including stocks with 3% minimum yields didn't improve the quality much.
Only one of the 16 held an EPS Rating above 80:Sturm Ruger (RGR), which has a best-possible EPS Rating of 99, gained 23% in Q3.
Dividend yield of 2% or more: Widening the search to yields as low as 2% had a dramatic effect. Five times as many stocks (71) showed up as in the 4% screen.
Whirlpool (WHR) was the biggest Q3 gainer among the stocks added. The housing-related play rose 36% in Q3. Whirlpool's EPS Rating is 86, putting it above about seven of every eight stocks in EPS growth.
Dividend yield of 1% or more: This screen yielded 129 stocks. Big gainers includedLithia Motors (LAD), up 45% with an EPS Rating of 99.
Some investors ignore the dividend. They look for income chiefly from price appreciation. They had more choices. In Q3, 329 stocks appeared in the screen when stocks paying a dividend of less than 1% or no dividend are included.