There is a certain attraction to buying shares that pay good dividends. If a company can afford to pay consistent, strong and growing dividends, it is usually a sign of a healthy business.
With growth stocks, the market might heavily punish 10% revenue growth if the forecasts were for 20%, while with yield stocks, the share price swings are much less wild as the dividend payout acts as a "buffer" to volatility.
Because of this, good dividend stocks are often priced at a premium to the wider market, meaning that investors have to pay more to get them into their portfolios. By putting these stocks on your watchlist, you can be ready to snap them up when they go "on special".
Here are three to consider, and the events that might cause short-term dips in the share price.
QBE Insurance Group Ltd (ASX: QBE) is an insurance business, which can be boiled down to two simple transactions: it collects cash from policy holders, and it pays out cash when policy holders make valid claims. The difference between the two represents the profit or loss.
The company has much more cash than expected liabilities, meaning it has hundreds of millions of dollars in the bank. It also holds its cash primarily in US dollars. A stronger Australian dollar, or a disastrous weather event could cause QBE's share price to fall in the short term.
But longer term, US interest rates will be rising, meaning the company will earn more interest on its cash pile. It has also consolidated its business divisions, so capital should be used more effectively. QBE's yield is just below 4%, but historical figures show that dividends can rise quickly given favourable conditions.
Harvey Norman Holdings Limited (ASX: HVN) is not one of the more exciting or newsworthy stocks on the ASX, but it is one of the best dividend payers.
The furniture and whitegoods store franchisor has a stable, defensive exposure to the overall Australian economy. If households are upgrading appliances, or buying new homes, Harvey Norman stores are profiting.
The semi-regular commentary about a housing price crash or threat of online retailing, both give Harvey Norman detractors the chance to talk down the share price.
However, it is unlikely Australia will experience a large-scale "house price recession" outside a few pockets of weakness, and online retail will not replace physical retailers any time soon. That means that Harvey Norman is a great stock to accumulate on weakness, with a yield above 5%.
Platinum Asset Management Limited (ASX: PTM) is more often thought of as a growth stock, but it also has strong dividend-paying credentials. Platinum manages international stock portfolios on behalf of clients, and has had over $20 billion in funds under management for many years now.
Short term fund inflows and outflows, as well as market conditions all buffet the share price of Platinum on a day to day basis. But the fund manager has been pivoting its portfolios towards China and India, and the local and global companies that will benefit from the multi-decade growth of those nations.
With a yield close to 6%, coupled with an experienced management team and a proven investment process, Platinum is a strong long-term portfolio option.
Foolish takeaway
Share prices move a lot on day to day sentiment, but if you can filter out the market noise and take a longer term view, then buying any of the three stocks on this list during bouts of periodic weakness could mean your portfolio gains a strong dividend share at an attractive price.
