To help minimize this risk, I look for high RS stocks with strong fundamentals. When it comes to income stocks, I look for companies that have increased their dividend payments during the past three years, have sustainable yields and sport growing cash flow.
Companies with strong fundamentals in these areas tend to be the biggest winners in the long run. Those looking closely would have seen that fundamentals in both Citigroup and GE were deteriorating in 2008 as their rising dividend yields made the stocks look otherwise attractive to many investors.
Both relative strength and fundamental analysis have merit in finding market-beating stocks, but what happens when we put these two methods together?
After a great deal of research and testing, I created a trading system that combines both relative strength and fundamental analysis. I call it the “Maximum Profit” system. Its rules help us identify stocks that are likely to outperform the market during the next six months to a year with lower-than-average risk.
The results from using this method have been outstanding — over a decade-long test, the Maximum Profit system generated a massive 571% total return. Its rules can be applied to any list of stocks, and in every test I have run, the system beats the market. This is true whether I test large caps or small caps, growth or value stocks, or any other group.
And best of all, if the system recommends a dividend-paying stock, the system’s safeguards make it virtually ‘bulletproof.’
Here’s an example of an ideal ‘buy’ for income investors using the Maximum Profit system — oil and gas partnership Delek Logistics Partners LP (NYSE:DKL). The company has a high RS of 77, which means it is outperforming 77% of the market and is in favor with larger investors. And even though the company has only been publicly traded since 2012, its earnings have grown 44% a year since 2002. Besides just being undervalued, it also pays a dividend yield of 4.8%.
Thanks to the system — which puts this stock’s relative strength and strong fundamentals to the test constantly even after I buy it — I can hold onto a solid dividend stock like this one without much worry. Even if things happen to go south for this company, the system will tell me long before the stock takes a plunge or cuts its dividend — which could prevent me from losing thousands of dollars.
P.S. — Because of their naturally strong fundamentals and tendency to outperform the market, stocks that pay large and growing dividends frequently show up as a ‘buy’ on the system’s test, and are often featured in my Maximum Profit advisory. In fact, nearly two-thirds of the stocks I research pay a dividend, and one-third of the stocks that show up as potential buys have a yield over 4%. To learn more about Maximum Profit and how it can help you buy dividend payers that are virtually ‘bulletproof,’ click here.
– Michael J. Carr
The article How To Buy Virtually ‘Bullet-Proof’ Dividend Payers Every Time originally appeared on StreetAuthority and is written by Michael J. Carr.
Michael J. Carr does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
