Ask The Fool
The lure of dividends
Q: I own some stocks with dividend yields below 5 percent and others with yields near 10 percent. Since all the companies seem sound, should I move all the money into the higher-dividend ones?
A: You should focus your money on your best ideas, and be sure to look beyond yields, too. Remember that one yield might be 8 percent, but the company might be growing very slowly.
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Another might offer a 3 percent yield, while growing more rapidly and hiking its dividend regularly and significantly — giving you bigger payouts over time.
My dumbest investment
Trends and patience
Dear Fool: Buying and holding any down-trending stock, including those you recommend, is dumb.
Several years ago, I lost $8,000 waiting for Whole Foods to turn around.
I no longer try to catch falling knives, no matter how great the stock might be in five years.
With these erratic markets, we can’t trust anyone or anything except the price of the stock and its trend.
The Fool responds: Careful, there. Focusing just on stock-price movements is more like speculating than investing.
And where you expect a stock to be in five or more years matters, too, as many stocks take a while to get near their intrinsic value.
Whole Foods’ stock crashed between 2006 and 2008, falling 36 percent, 12 percent and 75 percent.
But it nearly tripled in 2009 and gained 84 percent in 2010, 38 percent in 2011 and nearly 35 percent in 2012.
Focus on the growers, and be patient.
The Motley Fool take
Whirlpool spins profits
Whirlpool (NYSE: WHR) has been delivering some surprises.
For one thing, instead of laying off workers and moving jobs abroad, it’s hiring — and making hundreds of millions of dollars’ worth of plant upgrades for manufacturing products in … America. You know its name, but you may not realize that it has some other names under its roof, such as Maytag, KitchenAid, Jenn-Air, Amana, Roper, Estate and Admiral.
In the company’s second-quarter earnings report, revenue grew 4 percent to $4.7 billion, while earnings per share jumped 71 percent.
CEO Jeff Fettig reported, “Sales increased in every region of the world as we continued to expand margins.”
He added, “Given the strong underlying trends in our business, we recently resumed our share repurchase program and are raising our full-year outlook for EPS and free cash flow.”
Earnings are expected to grow some 26 percent annually over the next five years.
The rebounding U.S. housing market is helping, and deals such as one with SodaStream to introduce a KitchenAid-branded home-carbonation system is promising, too.
Best of all, the stock is attractive and offers a dividend yield near 2 percent. Its price-to-earnings (P/E) ratio, recently near 17, is above its five-year average of 13.4, but its P/E based on next year’s earnings is just 10.