Dividend Kings: 5 Companies Who Will Squash Fixed-Income
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With inflation eerily low, fixed-income investments are growing more and more frightening. While the short-term does not look too dangerous, particularly if the Fed decides to do another bout of quantitative easing (hopefully not!), our country is headed for a dangerous bout of inflation once the fiscal stimulus hits the fan.
This is troublesome.
It is particularly troublesome for investors in fixed-income mutual funds. When rates eventually spike and push bond prices lower, frightened investors will begin to sell off positions in their funds – further depressing prices. Even worse, new money will begin to flood into funds at the higher yields, which will dilute existing investors in those funds (at least until the bond fund managers put the new cash to work).
What are investors to do? Well, they could buy a complicated, fixed product – with an arcane name like Guaranteed Fixed Life Income Generation Plan VII – or they can buy vehicles that trade freely, like stocks.
While this approach isn’t for all income investors everywhere, it certainly beats the risk of holding long-term bonds that have longer durations and are more subject to interest rate risk.
Below are five dividend-rich companies that have pricing power within their industries, and can thus handle inflation well.
| Company | Payout Ratio | Dividend | 5-Yr Div. Growth Rate | P/E | Cash/Share | Consecutive Dividend Increases (Years) |
| Proctor & Gamble | 67% | 3.40% | 10.51% | 18 | 1.58 | 58 |
| Johnson & Johnson | 74% | 3.50% | 8.55% | 21.9 | 12.32 | 49 |
| Coca-Cola | 52% | 1.30% | 8.57% | 21.4 | 7.54 | 49 |
| Intel | 36% | 3.30% | 14.47% | 11.3 | 2.72 | 8 |
| Exxon Mobil | 21% | 2.60% | 8.65% | 9.3 | 3.86 | 29 |
Procter & Gamble (NYSE: PG) operates in six segments across 180 countires: Beauty, Grooming, Health Care, Pet Care, Fabric Care and Home Care, and Baby Care and Family Care. Procter & Gamble is a consumer company that sells everything from deodorant and razors to toothbrushes, batteries, and soaps. You have likely heard of many of its brands, including Tide, Pampers, Crest, and Head & Shoulders.
Even if inflation strikes, people will still shower, shave, and wash their hair.
Johnson & Johnson (NYSE: JNJ) sells skin and oral care products as well as over-the-counter pharmaceuticals. People will always need to wash their faces, and Tylenol, Band-Aids, and Neosporin aren’t going anywhere. Though its dividend is a bit less because of its recent share price increases, Coca-Cola (NYSE: KO) is still compelling. The company has increased its dividend 49 years in a row, and the company continues to expand into international markets. Plus, I believe that the Vitamin Water, Simply, and Powerade brands have upside in international markets, which could boost the company’s earnings.
Intel (NASDAQ: INTC) has tremendous upside for numerous reasons. One of my favorites is this – when Intel’s customers do well, it does well. Consider Microsoft, for example. If Microsoft’s new Windows 8 operating system proves to be a hit, the company will need an increased number of chips from Intel, arguably the world’s best chip maker. Moreover, Intel has its feet in both the data security and portable memory drive spaces. Hackers are getting even more sophisticated, and companies are becoming even more data-intensive. Both of these bode well for Intel.
Natural gas prices rest at 2.91 at the time of this writing, while oil sits at 92.25. An increase in either of these prices is good for ExxonMobil (NYSE: XOM), whose commodity-intensive operations stand to benefit if inflation lifts commodity prices.
Further, Exxon boasts an astounding market cap of $404 billion, making it one of the world’s most valuable companies. And with a P/E of merely 9.3, the company has some upside.
Despite what you think about today’s market, inflation is inevitable. Some fixed-income plays are safe, but the danger of longer-term bonds can be exchanged for dividend-rich stocks, which may even pay a yield near those of the bonds.
I do feel that the market is high right now as the S&P 500 approaches 1,400, so a market pullback could be a good time to enter these positions. And remember that a lower entry price means an even higher dividend!
ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel, Johnson & Johnson, The Coca-Cola Company, and ExxonMobil. Motley Fool newsletter services recommend Intel, Johnson & Johnson, The Coca-Cola Company, and The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
