Is This the Right Stock for Your Portfolio?
Ali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Value fund managers have proven over the decades that stocks trading with a considerable margin of safety and solid fundamentals are a great way to outperform the benchmarks (typically meaning the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite). Moreover, in these turbulent times, it's also beneficial to find stocks with heavy institutional ownership, since they tend to provide strong price support as they have holding periods much longer than the average investor. Below is a group that not only has strong institutional ownership, but some very nice dividend yields as well which should not only provide nice price support, but market-beating returns over the long-run.
During the financial fiasco of 2008-early 2009, virtually all financial firms were severely beaten with many going belly-up, such as Lehman Brothers, Washington Mutual, and Bear Stearns. Major conglomerate General Electric (NYSE: GE) also had strong worries that it too may go under as its GE Capital financial arm made many horrible financial decisions that pushed the stock down over 80% to just over $5/share in early 2009 and have it slice its dividend a whopping 68%. However, it has been just over three years now (my doesn’t time fly?) and GE looks to be back on solid footing raising the dividend four times since then and beating analysts’ consensus estimates in three of the last four quarters. Albeit the current $.68 annual dividend is still considerably below the $1.24 it paid annually on February 19, 2009, the trend upward is encouraging and with just a 50% payout ratio and a management team committed to rewarding shareholders, look for the already juicy 3.5% dividend to continue being raised.
If looking to diversify one’s position with another conglomerate, fellow Dow component United Technologies (NYSE: UTX) looks attractive. The company also pays an attractive 2.4% dividend yield and has a very low payout ratio of just 34% giving me confidence that management will continue raising it. Moreover, management was able to maintain its dividend throughout the 2008-2009 market crash without an even 1% reduction in dividends, demonstrating further its commitment to shareholders. I’d look to split one’s position between the two to eliminate specific company risk.
Virtually everybody has a mobile phone now in the United States and the two behemoths in this space are Verizon Communications (NYSE: VZ) and AT&T (NYSE: T) each with well over 100 million subscribers while Sprint is a distant third at approximately 55 million subscribers. They both have very nice yields of over 5%, with AT&T at 5.7% and VZ at 5.2%, along with free-cash-flow of approximately $14 billion annually giving me confidence that they will continue to be able to raise their dividends going further. Moreover, with continued adoption of mobile phones and population growth world-wide, these two companies will be great beneficiaries.
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