Dorfman: 'Dividend appeal' of Mattel, Staples, Guess makes them attractive

Amid the market squalls that have raged since mid-September, dividend-paying stocks have held up better than most.

That's not surprising. Dividends act as an anchor during market turbulence. But even in good times, stocks with dividend appeal are often a good bet. The ones I seek have an above-average dividend yield and have been increasing their dividend in recent years.

Since 1998, I have published a roughly annual list of stocks that have dividend appeal. This column is the 15th in that series. Of the 14 previous lists, 10 have beaten the Standard & Poor's 500 Index. The first one was unprofitable; the next 13 have shown a profit.

The most recent column wasn't a star, as only two of my five picks beat the S&P 500. Golar LNG Ltd. (GLNG), an operator of ships that carry liquefied natural gas, returned 52.4 percent, including both capital appreciation and dividends. Delek US Holdings Inc. (DK), a refiner, returned 35.6 percent.

But Iamgold (IAG) dropped 49.3 percent, and Alto Palermo SA (APSA), an Argentine shopping-center company, fell 3.4 percent. Gannet Co. (GCI) had a gain, but a puny one, 6.6 percent.

Scorecard

All in all, my list from a year ago returned 8.4 percent, compared with 14.6 percent for the S&P 500.

The long-term record, I'm happy to say, is better. My “Dividend Appeal” picks have returned 18.1 percent on average during the 12 months after publication. The comparable figure for the S&P 500 is 8.6 percent.

Bear in mind that past performance might not predict future results. My column picks are hypothetical and don't reflect trading costs or taxes. And the record of my column selections shouldn't be confused with the performance of portfolios that I manage for clients.

Now it's time for some fresh Dividend Appeal recommendations. To be considered this year, a stock had to have a dividend yield of 3.5 percent or more, and a dividend growth rate of 8 percent or better. It also needed a market value of $250 million or more, and sell for no more than 15 times per-share earnings.

BHP Billiton

Offering a 4.5 percent dividend yield is BHP Billiton Ltd. (BHP), one of the world's largest mining companies. Based in Australia, it trades in the United States as an American Depositary Receipt, or ADR. It mines coal, iron, gold and other minerals, and drills for oil and gas. China takes a big chunk of its production.

Investors scorn mining companies because commodity prices have been falling for several months. But I believe there is real value in BHP at 11 times earnings.

Mattel

Toy maker Mattel (MAT) offers a 4.9 percent dividend. The company's flagship Barbie dolls have been looking fatigued lately. And Mattel, which has its headquarters in El Segundo, Calif., lost a legal battle with rival Hasbro for the right to produce toys based on Disney's popular movie “Frozen.”

These setbacks have pushed Mattel's stock price down from about $47 when the year began to about $31. I expect a good Christmas season for toymakers this year, so I think the stock has comeback potential.

Staples

People think of Staples Inc. (SPLS) as a brick-and-mortar retailer, but a huge part of its business is conducted online. Companies can order from the online catalogue and often get their office supplies the next day.

Declining sales have been a headache for Staples. But the Framingham, Mass., company is profitable, is the leader in its category and offers a 4 percent dividend yield. It has been increasing its dividend slowly but steadily.

Guess

Back in 2007, Guess was a hot brand of jeans, and Guess Inc. (GES) traded at more than $40 on a good day. Today, it is below $21. Back then, the Los Angeles company barely bothered to pay a dividend. Today, it affords a 4.3 percent yield.

Like Staples, Guess is a fallen angel. At 14 times earnings in a market that sells for a multiple of more than 18, I think it has room to rise.

China Yuchai

I'll close with a speculative dividend play. If you can stomach the risks of investing in a Chinese stock, I suggest looking at China Yuchai International Ltd. (CYD), which has a dividend yield of 6.8 percent and trades for only six times earnings.

The company is based in Singapore, operates mostly in mainland China and trades on the New York Stock Exchange. It makes and services diesel engines for trucks. Growth has been spotty, and the parent company has sometimes clashed with its mainland operating company. But the yield is nice, and the growth potential is large.

John Dorfman is chairman of Dorfman Value Investments LLC in Boston. He can be reached at jdorfman@dorfmanvalue.com.