Best dividend stocks: Bluechip stocks guru Geraldine Weiss’ success mantra: Bet on high dividend paying companies
Geraldine Weiss, known as the ‘blue chip stocks guru’ is the founder of the advisory newsletter, Investment Quality Trends. She is also a co-author of two books.
The story behind the legend
Weiss was born in San Francisco in 1926 and studied business and economics at the University of California, Berkeley in the 1940s. She got fascinated by the investment world in the early 1960s and decided to learn as much as possible about investing.
Weiss took the first plunge in the stock market in 1962, but couldn’t find any suitable job as no brokerage firm was willing to consider her for the position of a broker due to the rampant sexism prevalent at that time.
She then decided to set up her own investment newsletter called Investment Quarterly Trends (IQT) in 1966 and became the first woman to publish a widely distributed stock market newsletter. This way, she broke the glass ceiling and successfully entered the exclusively male-dominated field of financial markets.
She signed her newsletters as “G. Weiss ” to hide the fact that it was a woman who was running such a popular newsletter as she didn’t want a backlash from the male-dominated investment world. Within a couple years, she had a loyal readership who made decent profits by following her investment advice.
Weiss remained involved with IQT’s overall strategy even after her retirement in 2002. Weiss’ analysis of blue chip stocks was always spot on and her investment style brought consistent success.
As an analyst, Geraldine’s work and interviews have been published in illustrious finance publications and have been appreciated by the who’s who of the investment world.
Also known as the “Dividend Detector”, Weiss researched and found the best blue chip stocks that promised great dividends as she believed that dividends were the ultimate driver of shareholding and connected stocks to corporate profits.
Weiss also co-authored two investment bestsellers, “Dividends Don’t Lie” and “The Dividend Connection.”
She also regularly participated in investment seminars, conferences and workshops throughout the world and has shared her wisdom with many young investors.
Why should you invest in companies paying consistent dividends?
Often referred to as the “Grand Dame of Dividends”, Geraldine Weiss believes the best way to achieve investment success is to back solidly-performing companies who consistently pay dividends.
“[Paying dividends] is perhaps the most sacred of all corporate financial components, and the measure of value we hold in the highest regard,” she wrote in her book “Dividends Don’t Lie”.
Weiss is of the view that a regular payout to shareholders is the best indicator of the financial health of a company, even better that an earnings figure, because it’s too easy to manipulate earnings figures in financial statements.
“A clever accountant can make earnings appear good or not so good, depending on the season or the objective. There can be no subterfuge about a cash dividend. It is either paid or it is not paid,” she says.
Weiss feels investing in companies that pay high dividends also ensures that investors don’t have to wait until they sell shares to receive an income from them.
Weiss is of the view that investors should indulge in regular trading and not just have a buy-and-hold approach towards investing.
Weiss advises investors to keep a tab on the dividend levels and share prices of dividend-paying companies and regularly adjust their portfolios to ensure they include only the ones paying historically high dividends for a share price that undervalues them.
“Folks who ignore the importance of dividends in making stock market selections are not investors. They are speculators,” she said.
Weiss is of the view that dividends can be considered as “real money” and are a hallmark of a bluechip stock.
Weiss feels investors should look for bluechip companies that have a strong balance sheet as these companies shouldn’t have trouble paying dividends in the future.
According to Weiss, investors should have a relatively concentrated portfolio and they shouldn’t hold more than 10-20 stocks.
Weiss’s investment approach
Explaining her investment approach, she says that she focuses on dividend yield, which is the annual dividend per share divided by the share price. She uses specific criteria to shortlist and assess stocks including collating 25 to 30 years of monthly stock price data to find extreme highs in dividend yield to determine if they are a bargain buy (undervalued stock price) or extreme lows in dividend yield and priced too high (overvalued stock price).
Weiss encourages investors to look at some basic value measures to confirm valuations derived from the dividend yield approach, including:
- A P/E multiple that is historically low for that particular stock and other similar stocks, and that is below the market multiple.
- A price-to-book ratio that is no higher than 1.3; the closer it is to 1, the better.
Weiss is of the view that as all shares go through cycles of undervaluation and overvaluation, investors should be looking to take advantage of these cycles.
They should buy shares when they are undervalued and sell them when they are overvalued.
“Never is there a better time to buy a stock than when a basically sound company, for whatever reason, temporarily falls out of favour with the investment community. When bad things happen to good companies, it must be viewed as a buying opportunity rather than a bailout,” she says.
Weiss says, she shortlists companies that meet six “blue chip” criteria:
- The dividend must have been raised five times in the past 12 years
- Have an “A” credit rating from S&P
- At least five million shares must be outstanding
- It must have at least 80 institutional investors
- A total of 25 uninterrupted years of dividend payouts
- Earnings improvements must have been recorded in at least seven of the past 12 years
Weiss’ 7 investing rules
Weiss came up with seven rules of investing from her years of experience in the investing world, which has helped investors of all ages from time to time to make better investment decisions.
Here are the seven rules listed by her:
- Stock must be undervalued as measured by its dividend yield on a historical basis
- It must be a growth stock that has raised dividends at a compound annual rate of at least 10% over the past 12 years
- It must be a stock that sells for two times its book value, or less
- It must have a price-to-earnings ratio of 20 or less
- It must have a dividend payout ratio of around 50% to ensure dividend safety plus room for growth
- The company’s debt must be 50% or less of its market value
- It must meet a total of six “blue chip” criteria
The secret to successful investing
Weiss’s investment approach has always given preference to safe rather than spectacular returns and she believes that there is no real secret to becoming a successful investor.
She is of the view that for value investors to be successful, they must have patience and discipline and should stay away from fear and greed.
“Successful investing in the stock market is not brain surgery. Anyone can be a successful investor. The secret is no secret. It is simply that you confine your selections to blue chip stocks, you buy them when they are undervalued and you sell them when they become overvalued. This is the well-lit path of the enlightened investor,” she says.
Weiss’s investment style was often referred to by traders as being “too bearish”, but between 2000 and 2016, the stock portfolio recommended annually by IQT outperformed both the S&P 500 and Buffett’s Berkshire Hathaway.
Kelley Wright, who succeeded Weiss at IQT has always been in awe of the investing genius and believes that Weiss has time and again proved that “Wall Street is no match for mom’s common sense and experience.”
(Disclaimer: This article is based on Geraldine Weiss’s book “Dividends Don’t Lie”)