The Dividend Payers You Should Buy

More US companies are deciding that it's appropriate to return some cash to their shareholders. In fact, in a report released just this week, Standard & Poors' analysts said that they can “comfortably say the dividend recovery is underway.” Of the 7,000 publicly owned companies they track, analysts say 299 companies increased their dividend in the third quarter. So far this year, 1,033 companies have boosted their dividends. All told, in the first nine months of this year, a net $18.5 billion has made its way to shareholders.

(To read Jim Quinn's article about why consumer deleveraging will cause a real estate collapse, click here.)

So now seemed like an appropriate time to check in with a tested dividend hunter: Donald Taylor, the longtime manager of the Franklin Rising Dividends Fund (FRDPX). The fund, which has four out of five stars from Morningstar and is run by Franklin Templeton Investments, has $2.8 billion in assets. Taylor looks for companies that have increased their dividends in eight of the last 10 years and doubled their total payouts over the same period. He prefers businesses that distribute less than 65% of their earnings. Adhering to these simple rules has helped Taylor best the market and crush rivals.

(To see Jeffrey Cooper's article about how there might be a dramatic reversal in the market, click here.)

Through October 5, the fund's 10-year annualized return of 6.74% beats the S&P 500 by 7 percentage points and leads its Morningstar rivals by 6.35 percentage points, landing in the top 1% of its category. FRDPX, which carries a front-end load of 5.75%, requires a minimum investment of $1,000. The fund is currently open to new investors. Recently, we spoke with the 56-year-old Taylor about his strategy and a few top picks. For more, please read on. Minyanville: Walk us through the fund's strategy. Taylor: We invest in companies with long records of substantial and consistent dividend increases. Such companies are high quality market leaders that tend to perform well over time, particularly well during periods of stress in the market place.

(To see Brett Chase's opinion on why and how biotech was hit hard, click here.)

We have five specific screens that we use. We look for companies that have at least doubled their dividends over the last 10 years. We want companies that have increased the dividend at least 8 out of the last 10 years without a dividend cut. On average, our companies have increased their dividends more than 25 years in a row. Then we look for companies that payout less than 65% of their earnings in the form of dividends. We want companies to reinvest back in the business. Fourth, we look for high quality firms: long term debt to total capitalization should be no more than 50%.

To read the rest, head over to Minyanville.