Which Dividend Stocks Are Worth Looking At?
The market has been defying gravity this summer, with the S&P500 up 49% since March. But most of the appreciation has been in what I consider lower quality stocks. Many homebuilders with doubtful prospects have doubled from their recent lows, while stocks that are somewhat recession proof like McDonalds, Walmart, Coca-Cola and Procter & Gamble have bounced a mere 15-20%.
According to Bloomberg, “companies with the worst earnings led the 45 percent gain in the Standard & Poor’s 500 Index since it fell to a 12-year low five months ago”. It might be a good time to sell some of your winners that have exceptionally well and either wait for a pull-back, or if you’re trigger happy, buy solid investment-grade companies.
Given the current economic environment with the US Dollar likely to devalue against foreign currencies and the high probability of inflation, you want to invest in a company with exposure to foreign markets, a stable business model that is non-cyclical and a history of growing dividends. You also want to avoid luxury brands or businesses that sell expensive goods.
Here are a few of the companies that I would consider looking at, along with their dividend yields.
- Verizon Communications (VZ): 5.87%
- Johnson & Johnson (JNJ): 3.21%
- Procter & Gamble (PG): 3.28%
- Colgate-Palmolive (CL): 2.41%
- Unilever (UL): 4.39%
- Altria Group (MO): 7.10%
- Philip Morris International (PM): 4.61%
- McDonalds (MCD): 3.55%
- Walmart (WMT): 2.51%
- Enerplus Resources Fund (ERF): 9.56%
While I don’t own any of these yet (except ERF), I do own some ETFs that hedge against dollar devaluation and inflation:
- CurrencyShares Australian Dollar Trust (FXA): 2.04%
- Morgan Stanley Emerging Markets Domestic Debt Fund (EDD): 7.45%
- Market Vectors TR Gold Miners (GDX): 1.90%
If you are going to buy currency ETFs or currencies you might want to also check out some of the risk-free currency CDs offered by Everbank. At the very least, definitely subscribe to their free newsletter, the Daily Pfennig. It’s quite informative and very interesting.
ETFconnect.com is a great site to find out more information about ETFs. Having some exposure to foreign currency and gold miners isn’t a bad idea. I’ve been worrying about the effects of the Federal Reserve printing money like its going out of style and the CEO of Coeur d’Alene (CDE), a silver mining company that I happen to own, predicts that Silver will jump 29% by the end of the year because of this.
Demand from investors seeking a store of wealth accounts for more than half of silver’s 23 percent price jump this year before today, Wheeler said in an interview in New York. The metal will reach $18 an ounce with supplies little changed and demand buoyed by purchases from exchange-traded funds, he said.
“We have this crushing new debt and dollar weakness,” Wheeler said today. “The outlook for precious metals is very positive, and silver will be No. 1.”
The U.S. government has pledged $12.8 trillion, an amount that approaches U.S. gross domestic product, in a bid to stem the longest recession since the 1930s. The spending will erode the value of the dollar and boost the appeal of silver and gold as alternative assets, Wheeler said.
“There’s a lot of anxiety out there over this debt,” Wheeler said. “Around the world, there are a growing number of investors who want protection. They’re going to want silver as part of their portfolio.”
If you believe any of this, you might want to increase your exposure to silver miners like CDE, SSRI or SLW, although these don’t pay any dividends.
Disclosure: I own ERF, CDE, FXA, GDX, EDD, physical gold and silver.
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September 13th, 2009 at 2:02 pm
“…risk-free currency CDs offered by Everbank.”
______________
I would encourage you to be more careful with your wording. These CDs are certainly not “risk-free”: presumably what you mean is that there is no risk to principal because of the FDIC, which we assume will always be able to afford the cost of bailing out depositors whose banks fail. There is, though, a currency risk: if the dollar actually strengthens against the currency you buy– i.e., if your prediction turns out wrong, then you lose money. And conversely, if you put say US$150k-200k into your Everbank account and the currency you buy strengthens against the dollar, you could find yourself crossing the FDIC $250k threshold pretty quickly.
I’m not condemning the idea of non-US currency CDs; but let’s be cautious about throwing around the phrase “risk-free”.
April 27th, 2010 at 8:37 am
There is an investment philosophy called value investing that speaks directly to this question. It is not someone telling you which ones to buy by name but it tells you how to identify “Which Dividend Stocks are Worth Looking at”. They keys are that they have a track record of 20 years or more with dividends. Their P/E ratio is low and the dividend yield is high. The company’s budget shows a history of strong & positive cash flow and the balance sheet shows a debt/equity ratio that is low and affordable. It is about knowing how to catch a fish.