In 2009 the USA market had the greatest nine month advance since the 1930's. Now what are you planning to do with your money in 2010? Do you feel like nervous Nelly?
No faith in the stock market, short-term outlook? Worried our government's monetary policy will lead to rapid inflation that will reduce the value of your high grade corporate bonds? No interest in investing in tax-free muni-bonds, because of the rising financial problems within states? Not ready to lock-in your money for 5 years in a CD paying a whopping 2.0%? Tired of sitting safe and liquid inside a stable Money Market Mutual Fund paying a ridiculously low 1/4%?
If you've answered YES, it's time to consider investing in some blue chip dividend paying stocks.
When your money earned 5.5% in safe FDIC insured bank accounts owning a stock paying 2.5% sounded unappealing. But today it's a whole different financial ball game. And you need to wake up and smell the dividends.
These companies recently raised dividend distributions, a sign of positive business outlooks.
AT&T (T), which is one of the top telecommunications companies in the US, increased its quarterly dividend by 2.40% to 42 cents per share. AT&T has increased its quarterly dividend in each of the past twenty-six consecutive years. The stock currently yields 6.00%. (analysis)
“Our 26th consecutive annual dividend increase underscores the Board’s continued commitment to stockholders and confidence in our strong financial position,” said Randall Stephenson, AT&T chairman and chief executive officer."
This was the slowest dividend increase for the telecom company in 8 years. The company already has a very high payout ratio of 83%, which leaves little room for further dividend increases, without a substantial increase in earnings per share. Still a steady rise in smart phones and iPhones sales (with consumers buying more expensive wireless internet connect services) should more than off-set landline sales declines. Verizon (VZ) which I own, is a similar investment play.
Pfizer Inc. (PFE), which engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals worldwide, increased its quarterly dividend by 12.5% to 18 cents per share. The stock currently yields 3.90%. The company cut its dividend in early 2009 after announcing its intent to acquire rival Wyeth in a 68 billion deal. Although the dividend appears to be well covered today, the business model which had previously allowed Pfizer to raise dividends for 41 years appears to be broken. Over the past decade the company has acquired new drugs through acquiring rivals and not organically through R&D. Without solid underlying strength in fundamentals, which would propel future earnings growth, the possibility for a long-term sustained dividend growth is low.
Dominion Resources (D), which engages in the generation, transmission, and distribution of electricity. The company generates electricity through coal, nuclear, gas, and oil resources, increased its quarterly dividend by 4.60% to 45.75 cents per share. This is the seventh consecutive year in which Dominion Resources has raised its quarterly dividend. Dominion Resources (D) does look like an interesting utility company, with one of the lowest payout ratios in the industry plus some solid earnings and dividend growth. The only issue is that the company does not have a long history of raising distributions. The stock currently yields 4.50%.
Hatteras Financial Corp (HTS) invests in adjustable-rate and hybrid adjustable-rate single-family residential mortgage pass-through securities guaranteed or issued by the United States Government agency, or by the United States Government-sponsored entity. The company announced its fourth consecutive distribution increase to $1.20/share. The new dividend is 4.3% higher than its Q3 dividend, and 20% higher than the distribution from this time last year. The stock currently yields 15.80%. While the yield might be tempting it is important to understand that the company makes money by borrowing money using short-term rates and then investing it in long-term government agency bonds, while earning a return in the process. This exposes the company to fluctuations in interest rates. If the FED starts raising rates in 2010, companies like HTS might be negatively affected in the process.
Waste Management, Inc. (WM), which offers collection, transfer, recycling, disposal, and waste-to-energy services, increased its quarterly dividend by 8.60% to 31.5 cents per share. This marks the sixth consecutive year that the Company has increased its quarterly dividend. The stock currently yields 3.50%.
BCE Inc. (BCE), which provides a suite of communication services to residential and business customers in Canada, increased its quarterly dividend by 7% to 43.5 cents per share. This is BCE's third increase to the annual common share dividend since the termination of its proposed privatization agreement in December 2008. The stock currently yields 5.90%.
General Mills (GIS), which engages in the manufacture and marketing of branded consumer foods worldwide, increased its quarterly dividend by 4.2% to 49 cents per share. General Mills has increased its quarterly dividend in each of the past six consecutive years. The stock currently yields 2.80%.
This is just a small list of possibilities. I'll share with you in a future blog a list of blue chips many consider the Best-of-Breed.
Remember, I advise low net worth investors, to consider the benefits of a diversified Mutual Fund Portfolio as a safer alternative to putting all your financial eggs into a couple of stocks. The odds of us picking the next GOOGLE or APPLE stock are slim.
Financial Disclosure: On 3/11/2010 of the stocks discussed within this article I held positions in Version and Pfizer
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