Three Stocks For A Safe Retirement Portfolio
siraj is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Approximately 40 percent of the total returns of the stock market going all the way back to 1930 have come from dividends. Dividends consistently paid out indicate that a company’s stock is a good investment--this represents one of the very few universal truths in investing. Investors who focus on buying consistent dividend-paying stocks are able to make it through stormy years of ups and downs in the market. In this article, I examine a number of such stocks, investment in which can be part of a well thought out, long term dividend strategy.
Aflac (NYSE: AFL) is the first stock in this collection. Aflac is a general business holding company and acts as a management company. Over the past five years Aflac has been consistently increasing its dividends by 45.83%. At present, Aflac offers a quarterly dividend of $0.35 cents per share.
The company also has been showing strong cash flows. Over the past three years, its operating cash flows have been growing at a high pace. At the end of 2012 its operating cash flows stood at $14.952 billion, an increase of $4.110 billion over the last year. In addition, it has a solid balance sheet with $2.07 billion in cash and a conservative investment portfolio.
The company has been looking to enhance its position in new markets, mainly through its U.S. corporate bond program. With the success of its U.S. corporate bond program, it is looking to invest about $3.1 billion in U.S. dollar-denominated, publicly traded corporate bonds. This investment strategy will enhance its flexibility, and increases the company’s opportunities to expand its investments.
Enterprise Products Partners LP (NYSE: EPD) is the second stock in this collection. At present, Enterprise offers one of the best and consistently increasing distributions. In the past five years, it has been able to increase its distributions by 32.02%. At present, the partnership offers a quarterly distribution of $0.67 cents per share.
Enterprise Product Partners benefited from record volumes in its fee-based businesses attributable to production growth, mainly in the Haynesville shale plays and Eagle Ford, and from strong demand for NGLs, mainly from exports and the U.S petrochemical industry. Though its revenue generation is quite low, still for the year ended in 2012 the partnership reported a record net income of $2.4 billion.
In the last year alone, it increased its cash distributions by 5.6% to $2.57 per unit. With year over year increases in cash distributions, it has raised its cash distribution rate for the last 35 consecutive quarters. Apart from $1.2 billion of proceeds from the sales of non-core assets, its distributable cash flow was $2.9 billion, providing 1.3 times coverage of the distributions
In addition, the partnership is investing heavily in growth opportunities. In the last year alone, it retained around $1.9 billion of cash flow to reinvest in growth opportunities. In 2012, Enterprise completed major growth projects of $2.9 billion of investment.
3M Company (NYSE: MMM) is a global technology company, and the third stock on this list. At present, 3M offers a quarterly dividend of $0.635 cents per share. Over the past five years, the company has been able to increase its dividend by 27%. In 2012, 3M paid a dividend of $2.36 cents per share, yielding at 2.5%.
Over the years, 3M has shown a solid financial performance. In the past three years, it has been able to enlarge revenues by 9% while the industry average stood at a negative 0.4%. In addition, 3M has a high margin on its sales; therefore, in the past three years, on average, its Earnings Per Share [EPS] growth stands at 11.8%.
Its cash flows are also in solid condition. It has been able to expand operating cash flows on a year over year basis. At the end of 2012, its operating cash flows stood at $5.30 billion. Its free cash flows adequately cover its dividend payments. At the end of 2012, free cash flows stood at $3.816 billion, while dividend payments only accounted for $1.635 billion. Its financial health also looks stable. It has high current and quick ratios, while the debt to equity ratio is very low at 0.3.
Aflac’s top-line growth has been consistently strong, reflecting a smart investment strategy. At present, it looks like a safe pick with hefty dividends. Additionally, the stock is trading at a discount. Analysts have a target price of $65 for shares. 3M expects free cash flow conversion to be in the range of 90 to 100 percent. With a solid financial position and positive outlook, 3M is well positioned to produce consistently increasing returns. EPD has a strong business model that allows it to generate consistently increasing returns. The partnerships shift towards fee based business provides more stability to its margins and cash flows.
The growing production of natural gas from hydraulic fracturing and horizontal drilling is flooding the North American market and resulting in record-low prices for natural gas. Enterprise Products Partners, with its superior integrated asset base, can profit from the massive bottlenecks in takeaway capacity by taking on large-scale projects. To help investors decide whether Enterprise Products Partners is a buy or a sell today, click here now to check out The Motley Fool's brand new premium research report on the company.
siraj sarwar has no position in any stocks mentioned. The Motley Fool recommends 3M, Aflac, and Enterprise Products Partners L.P.. 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!