4 Income-Producing Stocks for 2013
Luke is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The day my parents retired was a day of pride for me. Young enough to still travel and possessing a mutual wanderlust, Mom and Dad have undertaken numerous journeys and fulfilled-long awaited dreams since retiring a few years ago. Their excursions have included trips to Europe using my airline travel benefits, a low-cost reposition cruise from Barcelona to Miami to deliver a vessel for the winter Caribbean season, and frequent travels in the cargo bays of huge military aircraft to get to Mediterranean destinations. I encourage them, although somewhat jokingly, to spend their children’s inheritance completely so I will have no squabbles with my siblings after their passing. But in reality, they have been the children (albeit, poster children) of frugality and thrift in their later years.
Their plan was to pay off all major debt and (as Pops puts it) “live off the interest,” so, he came to me recently a bit frustrated and seeking some investment advice. After the expiration of several CDs that were yielding in the 2 - 2.3% range, he was having difficulty in locating a secure source of income investment that could produce a comparable level of return (a problem facing many baby boomer retirees right now). I assured him that his problem was temporary in nature and in two years time he may miss these low interest rates when he goes to buy another car.
My advice to him was to take 50% of the money and place it in CDs, which were yielding approximately 1.3% at the time. Then, place 25% in an income-oriented mutual fund. With the remaining 25%, start an interest-bearing account with one of the online brokerages and sit on his hands and wait for some dividend-paying stocks to come sufficiently down off their 52-week highs. This would provide some upside on the stock price, a high likelihood of a return far superior to that offered by CDs and mutual funds, and a comfortable level of liquidity in the event that interest rates were to take a sudden upturn.
Here is the list I created for my Dad of four high-quality dividend-producing stocks for 2013.
A quarterly gift from Ronald
McDonald’s (NYSE: MCD) After an unusual negative sales growth number in October of 2012, the Golden Arches bounced back in November to better growth and ended the year by beating earnings estimates by 3.8%. The company currently pays a dividend yield of 3.3% with a beta of .31, which signifies strong price stability. Wisely, their focus on growth seems to be shifting to the rapidly expanding Asian market and away from Europe which has some bad road still ahead. Due in part to the recent numbers miss, this stock is hovering a few percentage points off its 52-week high (a rare opportunity to buy a quality product cheaply). McDonald's beat earnings estimates by 3.8% in the fourth quarter of 2012 and is on track to experience major growth in 2013 and beyond.
For my recommendations on some marketing strategies McD’s can use to accelerate sales growth, take a look at my recent blog.
Chinese good luck charm
With a market capitalization of $227 billion and a subscriber base nearly twice as large as the US population, China Mobile (NYSE: CHL) is the world’s behemoth in the wireless provider realm. Similar to McDonald's, its current dividend yield is 3.5% but with a much higher possibility of an upside to the stock price. Due to its expanding 4G customer base and potential offering of Apple’s iPhone, the outlook for 2013 is excellent. The company’s expectations for revenue growth are 5.4% to $88.5 billion. If one matches the 12-month price target of $72 with a 3.5% yield, a return of around 30% could be expected (certainly something to call home about).
Although Southern Copper (NYSE: SCCO) is trading near its 52-week high, no one can argue with its 26.7% dividend payout. With copper prices predicted to skyrocket this year, that ceiling will likely become the floor of a new price level. According to the Economist Intelligence Unit’s predictions, copper prices will rise 12% on tight supplies. If the cost of extraction of metals stays the same, that rise is reflected directly on Southern Copper’s bottom line. Unfortunately, both taxation and labor costs are predicted to rise, somewhat minimizing this windfall of revenue. Even so, a dividend equal to half its most recent payout would still yield 13.3%, an extraordinary return on investment in this economic environment.
Mr. Softie helps pay the bills
International software spending is expected to nearly double in 2013 and IT services are predicted to triple. One beneficiary of this projected boom is Microsoft (NASDAQ: MSFT). Its 3.3% annual yield will be likely higher this year as US sales recover and markets in the developing world expand. Windows 8 will give Microsoft greater access to the booming mobile software market and look for a focused foray into cloud services, as well. Windows Azure application platform released feature updates in June of 2012 which will increase Microsoft’s share of the cloud computing market. In addition, the much anticipated release of the Xbox 720 around June will expose more gamers to the Xbox Live subscription service, allowing the company to peddle its other content directly to consumers. Now significantly below its March 2012 high of $32.95, there is considerable potential for upside throughout 2013.
So, there it is; a quartet of sound paycheck-producing stocks that any retiree investor could benefit from. I don’t know if my father will heed my investment advice, but I hope he does. He deserves a better return on his hard-earned retirement money than the impending inflation rate expansion will take away from him. Ah, but that is another blog for another day!
lukey911 has no position in any stocks mentioned. The Motley Fool recommends McDonald's. The Motley Fool owns shares of China Mobile, McDonald's, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!