7/12/2011 4:48 PM ET|
7 dividend plays to consider now
7 safe dividend plays
To get you started, here are seven promising dividend plays to consider:
This company is the world's second-biggest cigarette seller, after China National Tobacco. Philip Morris International controls the rights outside the United States to such brands as Marlboro, Virginia Slims and Parliament. So it's positioned to sell more cigarettes as smokers in rapid-growth emerging markets earn more and trade up to premium brands.
Insiders continue to buy the stock, suggesting room for further appreciation. And, of course, tobacco's addictive nature assures steady revenue. If you oppose smoking for moral, health or other reasons, this stock is not for you. As an ex-smoker, I'd understand.
The regional bank has 1,800 branches in the Southeast and Washington, D.C. Even during the worst of the credit meltdown, BB&T was profitable. The company used its financial clout to attract customers from competitors and purchase the assets of a failed bank in Florida from regulators.
As the economy improves and loan business grows, Wordell believes the bank could see annual earnings as high as $3.50 a share, from $1.21 recently. Wordell expects the bank to raise dividends as earnings and loan quality improves.
With a stable of popular brands such as Crest, Tide, Bounty, Duracell and Pampers, this company produces a steady stream of revenue that should support its stock price. No matter how tough times get, people need toothpaste, detergent and diapers.
The company has excellent marketing skills and a global reach. "There are few safer ways to play the pent-up spending of the emerging-market consumer than an investment in P&G," says Morningstar analyst Lauren DeSanto.
4. Johnson & Johnson has a dividend yield of 3.4%.
The world's largest health care company provides investors with exposure (similar to that of a mutual fund) to the health care sector. The company has three main divisions: pharmaceuticals, medical devices and consumer products.
Johnson & Johnson has had its share of quality control issues, but that's no reason to avoid this stock. The company's strong research pipeline, broad product lines and abundant cash flow mean it will continue to grow -- and keep increasing dividends.
Among the company's best-selling drugs are Humira, used to treat autoimmune diseases, and Kaletra, a treatment for HIV and AIDS. The company also sells medical devices, including stents, blood diagnostic kits and nutritional products.
Abbott has a few potential blockbusters in its pipeline, including a treatment for kidney disease. "It's just a good defensive, cash-generating vehicle," says Wright.
Utilities are the classic dividend play from your grandparents' day. They're still a good place to get yield.
Wright says he favors PPL in part because the provider of electricity to customers in Pennsylvania, Kentucky, Virginia and Tennessee is out of favor with investors. "Your risk/reward is not going to get much better than it is now."
Electricity demand should increase as the economy picks up. And much of the revenue from increased sales will fall to the company's bottom line, because PPL generates power from lower-cost energy sources, particularly nuclear and coal.
This utility serves central and Northern California, where regulators are telling utilities to develop renewable sources of energy such as solar and wind power. As PG&E does so, Wordell says, the company will be allowed to raise rates, which will boost earnings, allowing the company to raise dividends.
In sum, the seven recommended dividend-paying stocks are: Philip Morris International, BB&T, Procter & Gamble, Johnson & Johnson, Abbott Laboratories, PPL and PG&E.
What about risks?
Of course, dividend stocks can lose value, and you could eventually lose more than you'll earn from dividends.
But companies like these, with financial strength and a record of paying dividends, should be able to recover from any downturn. "If you are patient, you won't suffer any capital loss," says Wright.
Another risk is that the tax rate on dividends, currently 15%, could be raised when the prevailing capital-gains rate expires at the end of the 2012. I don't know how this will turn out, but there's a chance a political compromise will be reached that prevents dividend income from once again being taxed at the rate for ordinary income.
At the time of publication, Michael Brush did not own or control shares of any company or fund mentioned in this column.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
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