Dividends aren’t dinosaurs. True, many investors think so. And so do many companies. They reason that dividends are subject to double taxation that is, corporations are taxed on their profits and then shareholders are taxed again on their dividends. By contrast, a company can use its spare cash to repurchase shares. That tends to enhance the value of the stock (fewer shares outstanding means a higher profit for each share), and it doesn’t subject shareholders to taxation immediately. And when the tax eventually comes (when the shareholder chooses to sell) it is at the relatively kind capital gains rate.

That argument is true, just as it’s true that Marilyn Monroe had short legs. So what?

A dividend is a concrete, tangible sign of a corporation’s success and of the shareholder’s participation in that success. When a company raises its dividend, you can bet that management believes earnings are sustainable at the current level or better. It is embarrassing to cut dividends, and companies prefer not to do it.

Over the decades, stocks with above-average dividend yields have outperformed others, especially during tough markets.

If the terrorism menace continues to weigh on the stock market, stocks with high dividends and high dividend growth rates may decline, but they probably won’t fall as far as the average stock.

Beating the market

Last October, I wrote a column about four stocks that I thought possessed dividend appeal above-average yield and rapid dividend growth. From Oct. 10, 2000 through Oct. 19, 2001, those four stocks Ford Motor Co., Wallace Computer Services Inc., F & M; National Corp. and Commerce Group Inc. are up an average of 28 percent. Over the same time span, the S & P; 500 lost 22 percent.

Ford declined 31 percent, but the other three were up smartly 18 percent for Wallace Computer, 47 percent for Commerce Group and 76 percent for F & M; National.

Under the circumstances, it seems worth trying the same exercise again. Here are four stocks I think possess dividend appeal today: Cullen/Frost Bankers Inc., CMS Energy Corp., Textron Inc. and U.S. Bancorp.

Cullen/Frost, based in San Antonio, is the holding company for Frost National Bank. The stock fell 19 percent on Sept. 28 after the company said it would set aside more money to cover bad loans, offer early retirement to 8 percent of its workforce, and earn about 30 to 32 cents a share in the third quarter rather than the 55 cents analysts had expected.

Following that decline, the stock sells for 12 times earnings and 2 times book value (corporate net worth), pretty reasonable as bank stocks go these days. The dividend yield is 3.6 percent, and the company has raised the dividend at a 16.3 percent annual rate for the past five years.

I thought one analyst made a revealing comment when he cut his rating on the stock to “sell” from “buy.” Cullen/Frost is “a higher-quality name,” said David Trone of Prudential Securities Inc., “and if we’re seeing news like this from them, more banks will follow.”

Exactly. My guess is that Cullen/Frost’s problems are simply the industry’s problems. Buying stock in a good company when its industry is experiencing hard times often is a good strategy for long-term investors.

CMS Energy, out of Dearborn, Mich., is an electric utility (Consumers Energy) that also operates gas pipelines, runs independent power projects, provides services to gas-fired power plants and is active in the energy trading market.

I think CMS is unusually entrepreneurial for a utility. It offers a 6.9 percent dividend yield, and has shown 8.1 percent annual dividend growth over the past five years.

Textron, based in Providence, R.I., has four major business segments: aircraft (mostly helicopters), automotive parts (such as engine camshafts), industrial products (such as fasteners) and financial services.

Conglomerates are out of favor these days. A highly diverse company like Textron can achieve value for shareholders by splitting the company into its component parts. At $34.49, the stock sells for only 11 times recent earnings. It offers a 3.7 percent dividend yield and has shown 8.7 percent dividend growth.

U.S. Bancorp of Minneapolis lent a lot of money to airlines, which are in dire straits following the terrorist attacks on the World Trade Center and Pentagon. The airlines must spend more on security precautions even as their revenue dries up because people are afraid to fly.

On Oct. 16, U.S. Bancorp said its profit for the third quarter would be down 93 percent as it set aside money to cover bad loans to airlines and others. (Another bad loan was to Professional Business Services, a Kansas City, Mo. company accused in July of defrauding people who invested in cattle.)

Paying the price

All this is a serious setback. But is the bank’s goose cooked forever? I am inclined to think not. The company earned between $1.06 and $1.62 every year from 1996 through 2000.

The stock has already paid a stiff price for the bank’s woes. It fell from about $25 in mid-August to $16.81 on Oct. 12 before staging a mild recovery to the current $17.38. Today it sells for 12.9 times recent earnings and 2.1 times book value.

U.S. Bancorp offers a 4.3 percent dividend yield and has shown annual dividend growth the past five years of 29.2 percent.

Will these stocks perform as well as the batch from a year ago did? Probably not, because last year’s group did so well. However, my guess is that they will beat the S & P; 500 for the coming 12 months. We’ll check in a year from now and see.

John Dorfman is a columnist with Bloomberg News.