Top Stocks of 2013 Only for the Income Investor
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the general market continuing to be volatile, investors, including myself, are understandably uncertain about where to put our hard-earned investment capital. Savings accounts, certificates of deposits (CDs), money markets, and treasury bills yield next to nothing and so that leaves us questioning where we can at the very least get a reasonable nominal return, let alone any hopes of exceeding the rate of inflation.
Looking deeper, high-quality, stable dividend paying stocks seem at this time to be the best option as the average company in the S&P 500 is yielding approximately 2%, which is considerably higher than any of the above stated options. The following are well-known, stable companies that should continue to churn out not only attractive dividends, but capital appreciation over the long term as the general market (aka “Mr. Market” as Professor Benjamin Graham eloquently named it) catches on to these companies' attractive prospects.
Beverage giant Coca-Cola (NYSE: KO) is a world class company that has a presence virtually everywhere around the world. With over $47.5 billion in revenue the past 12 months and a market capitalization at approximately $170 billion, we can clearly see that the corporation is not only here to stay but marked for continued greatness. With returns on equity exceeding 26% and free cash flow at approximately $6.5 billion, the company can continue to have many options at its disposal.
One of my favorite actions of the company has been for management to continue over the decades raising its dividend, which now stands at an impressive 2.7% yield, considerably above the 2% of the average Fortune 500 company. Moreover, with a payout ratio at 52%, investors can continue to expect the dividend not only to be secure, but be raised in the near future. Add in the fact that the company has the great competitive advantages of an established supply chain, immense brand value, and beneficiary economies of scale through such a massive revenue base and I believe KO should serve investors well for the long term.
Telecommunications giants Verizon (NYSE: VZ) and AT&T (NYSE: T) are ubiquitous and very well-respected companies that benefit from some compelling competitive advantages. Having well over $110 billion in annual revenue allows both of these firms to benefit from economies of scale, much like Coca-Cola. Each has well over 100 million wireless subscribers, giving them a huge advantage of their distant number three competitor, Sprint, which has approximately 55 million.
Perhaps most importantly, management has been very kind in rewarding shareholders through billions in share buybacks and current dividend yields at approximately 5%, well ahead of the average 2% Fortune 500 company. Moreover, with the Nokia Lumia 920 smartphone being received comparatively well by the general public and helping improve margins for both companies (these have less costly subsidies than the more expensive Apple iPhone), expect earnings to improve further in the upcoming quarter. Both of these companies are sitting approximately 10% from their highs, while their fundamentals have only improved. I think these are two solid dividend companies for the long-term income investor to consider adding to their portfolio.
I’d like to also say I appreciate you reading my thoughts and reiterate that these are just the views of the blogger and should not serve as a substitute for any professional financial advice or counsel in general. Respectful comments and questions are always welcome below on the comment board.
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