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Best Stocks for 2011 *

D4L — Wed, 22 Dec 2010 07:30:55 +0000

It is a great time of year! The Christmas music, decorations, family gatherings, holiday plays and stock picks. Stock picks? Yes, ’tis the season for stock predictions! Virtually every financial writer will pen an article selecting his or her top picks for the upcoming year. I enjoy reading them and the logic behind the picks. As a long-term buy and hold investor, generally most aren’t useful for me; nevertheless, I find them entertaining and sometimes there is a gem to be found. Here are some picks for 2011…

Jon Birger at Fortune notes that there’s still a real buying opportunity in growth stocks, with this years selections slanted toward commodities. Here are the 10 picks for 2010:

Mosaic (MOS) potash production capacity has grown 10% since 2006 and is expected to increase another 60% between now and 2020. And as it rises, the company’s stock seems likely to follow. Currently yielding: 0.3%

Agrium (AGU) earnings are on pace to jump 60% in 2010, and analysts are expecting another 44% bump next year. Currently yielding: 0.1%

Analysts expect Dow‘s (DOW) 2011 earnings to be up 32% — on the heels of a 212% earnings improvement this year. (2009 was a disaster.) Best of all, Dow’s stock isn’t priced to reflect the growth company it has become. Currently yielding: 1.8%

Transocean (RIG) is well indemnified against blowout-related liability. Oil prices have risen 17% since May as global demand has rebounded to 2007 levels and production isn’t keeping up with demand. Currently yielding: 0.0%

Royal Dutch Shell (RDS-B) is a safe place to get a dividend yield. But it has a really good set of strategic initiatives going for it too. Currently yielding: 5.1%

Lennar (LEN) has a history of making lemonade from real estate lemons. During the S&L crisis in the early 1990s, it made a small fortune buying distressed properties at 30¢ or 40¢ on the dollar and then reselling them for 50¢ or 60¢. Currently yielding: 0.9%

East West Bancorp (EWBC) is now believed to be the largest Chinese-American-focused bank in the country. Americans boast a savings rate 19% higher than the national average. Currently yielding: 0.2%

Royal Caribbean (RCL) is trading at a modest 13 times 2011 earnings, but deserves a P/E closer to 17, which was Royal Caribbean’s average valuation from 1997 to 2007. Currently yielding: 0.0%

Entropic (ENTR) is priced more like a value stock: At $9 a share, it trades at 11.7 times projected 2011 earnings. Currently yielding: 0.0%

Apple (AAPL) is definitely not overpriced. Especially not for a company so well positioned in such fast-growing markets. Currently yielding: 0.0%

In selecting their best stocks for 2011, CBS Money Watch focused on value stocks and asked Tom Forester, manager of the Forester Value Fund, to come up with the “top five value stocks for 2011.” His list of companies are mostly household names whose neglect or avoidance by investors leaves them trading at bargain valuations. The list includes:

Microsoft (MSFT) has grown cheap over the years in line with the ebbing of the software maker’s reputation as an innovator. Currently yielding: 2.3%

Hewlett-Packard (HPQ) reputation has been tarnished by the antics of some of the bosses making their way through the executive suite’s revolving door. The result is a PE ratio of about 7.5 times next year’s earnings as investors continue to shun the stock. Currently yielding: 0.8%

Chevron (CVX) is the cheapest of the oil super-majors and is more sensitive than its rivals to the price of oil because more of its business is related to production rather than activities like refining. Currently yielding: 3.3%

CVS Caremark (CVS) trading at roughly 11 times next year’s earnings, investors seem to be ignoring CVS’s valuable pharmacy benefit management business. Currently yielding: 1.0%

Best Buy (BBY) should benefit from strong holiday sales of gadgetry like iPads, Kinect Xboxes, phones and big-screen TVs; and should continue to get a boost from the demise of Circuit City. Currently yielding: 1.7%

Greg Sushinsky in an article on Investopedia selected a sampler of some potent large-cap stocks which pay attractive dividends. Here are his selections and reasons for choosing them:

Verizon Communications (VZ) is expected to offer iPhones next year. Estimates are that it may land as many as 10 million activations when Verizon Wireless begins selling the iPhone. This will be a healthy addition to Verizon’s revenue stream. Currently yielding: 5.6%

Merck (MRK). underlying business has healthy margins and cash flow generation. Even if you scale back the revenue and earnings projections the stock looks cheap. Currently yielding: 4.2%

Conoco Phillips (COP) and other integrated oil company stocks tailed off after the BP (BP) oil spill in the Gulf of Mexico. Currently it sells for less than nine times earnings. Currently yielding: 3.4%

Unilever Plc (UL) has a wide mix of businesses, and the stock got a recent enthusiastic analyst upgrade. The stock is a bit pricey now, but it is projected to continue its earnings rebound. Currently yielding: 3.8%

Coca Cola (KO) continues to grow its earnings despite economic headwinds. The underlying growth and value of the company makes its dividend as solid and stable as any. Currently yielding: 2.8%

As a long-term, buy-and-hold income investor, many of the stocks in the above lists don’t meet my criteria for a buy. Dividend investors are looking for stocks that will perform well over the long run, not just 2011. As such, I prefer to start with this list of stocks.

Full Disclosure: Long CVX, KO. See a list of all my income holdings here.

(Photo Daniela Baack)

3M (MMM) and Manulife (MFC) Answer The Leadership Call *

D4L — Fri, 13 Feb 2009 11:30:51 +0000

When the world appears to be collapsing in around you and things look their darkest, it is then when character is determined and leaders rise to the top. On Tuesday, U.S. Treasury Secretary Timothy Geithner called for a new program that combines public and private capital to be used in a fund that will buy troubled assets of up to $1 trillion, aimed at unfreezing credit markets. The the markets were underwhelmed. Many companies, such as Harley-Davidson (HOG) and Dow Chemical (DOW), used this smoke screen to slash dividends, but in the midst of the turmoil, an American Aristrocrat and a Canadian Achievier stood tall.

3M Co. (MMM) is a diversified global company has operations in electronics, health care, industrial, consumer and office, telecommunications, safety and security, and other markets. On Wednesday its Board declared a dividend of $0.51/share, a 2% increase. The dividend is payable on March 12, 2009, to shareholders of record at the close of business on February 20, 2009. This is the 51st consecutive year the company has increased its dividend. 3M’s Board also approved an extension to the company’s $7 billion share repurchase authorization which would have expired this month. The stock’s dividend yield is over 4%.

Manulife Financial (MFC) is a Canadian insurer that is among the world’s largest life insurers, offering products and services mostly in North America and Asia. On Thursday, its Board of Directors declared a quarterly dividend of $0.26/share, payable on and after March 19, 2009 to shareholders of record at the close of business on February 25, 2009. The stock’s dividend yield is 5.80%. (stock analysis)

Other companies flexing their financial muscles with higher dividends include:

Compass Minerals (CMP) Raises Qtr. Dividend to $0.355/share (yield 2.36%)
QNB Corp. (QNBC) Increases Dividend to $0.355 (yield 2.36%)
Terra Nitrogen (TNH) Boosts Qtr. Dividend by 6% to $2.97/unit (yield 10.66%)
Northeast Utilities (NU) Raises Qtr. Dividend by 11.7% to $0.2375/share (yield 4.03%)
Sigma-Aldrich (SIAL) Increases Qtr. Dividend by 11.5% to $0.145/share (yield 1.51%)
Progress Energy (PGN) Boosts Qtr. Dividend to $0.62/share (yield 6.47%)
Honeywell (HON) Raises Quarterly Dividend to $0.3025/share (yield 3.80%)
APCapital (ACAP) Increases Quarterly Dividend 10% to $0.11/share (yield 0.98%)
Robert Half International (RHI) to Bumps Quarterly Dividend 9% to $0.12 (yield 2.7%)

Finally, the reining dividend champion, Diebold (DBD) increased its dividend 4% to %0.26/share for the company’s 56th consecutive year. The company develops, makes, and services self-service transaction systems, electronic & physical security systems, and software used to equip bank facilities, voting terminals. The stock’s dividend yield is 4.22%.

For other companies around the world with a string of consecutive dividend increases still in tact, see Dividends Value’s Stock Ideas page.

Full Disclosure: Long MFC, PGN

(Photo: Steve Woods)

Big Names and Dividend Cuts Make The News *

D4L — Fri, 30 Jan 2009 11:30:45 +0000

Dividend cuts, such as Pfizer’s (PFE) 50% slash earlier this week, along with big name companies such as General Electric (GE) and Dow Chemical (DOW) trying to convince their shareholders they won’t cut their dividends still dominate the business news. What is being overlooked is the steady stream of companies stepping up to the plate and raising their dividends, as good companies do – even during recessions.

The last week saw too many dividend increases to list them all, but here are a select few that dared to declare double-digit dividend increases:

Canadian National Railway (CNI) Increased Its Qtr. Dividend by 10% (2.25% yield)
Pall Corp. (PLL) Raised Its Qtr. Dividend by 11.5% (2.18% yield)
CMS Energy (CMS) Boosted Its Qtr Dividend 40% (4.25% yield)
Alberto Culver (ACV) Increased Its Qtr. Dividend 15.4% (1.20% yield)
RPC (RES) Raised Its Qtr. Dividend by 16.7% (3.49% yield)
TFS Financial (TFSL) Boosted Its Dividend 40% (2.20% yield)
D&B (DNB) Increased Qtr. Dividend 13% (1.83% yield)

In every market there are winners and losers. Find a company that consistently raises it dividend and more times than not, you have found a winner.

Full Disclosure: Long GE, CNI

(Photo: Steve Woods)

Double-Digit Dividend Securities In the News *

D4L — Fri, 02 Jan 2009 11:30:00 +0000

Mango trees will settle into a cropping pattern by the third year after planting and reach peak production in six to eight years. The tree is long-lived with some specimens known to be over 300 years old and still producing fruit. Dividend investing is similar to planting a mango tree. Things start very slowly at first. It appears as if all your efforts are in vain, but ever so surely the process begins to produce fruit (dividends). Just as picking fruit from a mango tree does not harm it, living off dividends does not damage the investment’s ability to produce future results.

Here are several companies sharing the fruits of their labor with their shareholders via double-digit dividends:

Barron’s: Linn Energy (LINE) 21% Yielding Dividend Is Safe
Linn Energy, LLC (Linn Energy) is an independent oil and gas company focused on the development and acquisition of long-lived properties in the United States.

LINE is an astute and disciplined hedger and, as such, was able to lock in favorable prices during this summer’s energy-price bubble for its products going out three to four years. In fact, based on its third-quarter distribution of 63 cents per unit (or $2.52 annualized), the company is throwing off a current yield of more than 20%. Citigroup analyst Richard Roy wrote in a recent report that this distribution level is “relatively secure” for at least the next two years or more. And the company appears to have done a nice job of protecting its distribution levels. Given its current knockdown unit price, Linn seems poised to deliver some capital gains, too. Link to Barron’s Article

Dow Chemical (DOW): Yielding 11% After K-Dow Unravels
The Dow Chemical Company (Dow) is a diversified chemical company that offers a range of chemical, plastic and agricultural products and services. The Company is engaged in the manufacture and sale of chemicals, plastic materials, agricultural and other specialized products and services.

The pressure on DOW shares earlier this week is related to the termination of its multi-billion dollar K-Dow Petrochemicals joint venture. The funds that the deal would have provided to Dow were crucial to the Rohm & Haas (ROH) acquisition. Without access to that cash, Fitch Ratings has warned of possible future downgrades of its credit ratings on DOW and ROH.

DOW has publicly defended the $1.68 per share annual dividend payout, but with a major recession and an unstable merger deal, it might be difficult to maintain.

40|86 Strategic Income Fund (CFD) Increases Dividend (12.75%)
40/86 Strategic Income Fund (CFD) is a non-diversified, closed-end management investment company. The Fund’s primary objective is to seek high current income. The Fund invests primarily in high-yield bonds, debentures, notes, corporate loans, convertible debentures and other debt instruments rated below investment grade. The Fund’s investment advisor is 40 | 86 Advisors, Inc.

Three very different securities, one thing in common – No dividend cuts.

Disclosure: No position in the aforementioned securities.

(Photo: Steve Woods)