10 Stocks for 2013: #7 - Kinder Morgan Energy

Dave is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

At Fastball Financial, we've compiled a portfolio of 10 Stocks for 2013 to provide a portfolio of great stocks for:

  1. Diversification across industries and market caps
  2. Growth in some of the hottest themes and industries
  3. Sufficient stability and dividends to offset potential market losses

Thus far, we've named Intuitive Surgical, Apple, F5 Networks, Starbucks, Chipotle, and Lululemon to this portfolio.  Let's take a break from the consumer stocks for a moment and focus on dividend-paying companies as we dive into the 7th stock: Kinder Morgan Energy Partners (NYSE: KMP).  This pipeline operator was also on our list of 10 Stocks for 2012, but was basically flat for the year when you include dividends.  Now, with a year's worth of earnings behind it, good prospects for future growth, and a 5.7% dividend, we're looking at Kinder Morgan Energy as a good, safe play for 2013.

 

Contrary to some bullish investors, I don't expect a sharp rise over $100 in the near future.  It certainly could happen, but I think it will be a more modest increase in stock price throughout the year.  Couple that with a 5.7% dividend and you have a stock that will provide income in case of a market downturn and stock returns on its own merits if the economy is strong.

What should also help juice the company's growth past 2013 is the acquisition of El Paso, announced last year.  On their earnings call last week, the company indicated that they were ahead of schedule and could wrap-up the deal in the first half of 2014.

As long as Kinder Morgan Energy can keep producing consistent revenue and earnings, while also increasing their dividend payout, the stock will continue to be a good long-term hold.

Alternates: American Tower, Proctor & Gamble and Intel

I'm always trying to offer alternates in case you are not sold on the pick for the 10 Stock Portfolio for 2013, so let's look at some other companies that offer dividends.  In order of smallest to largest dividend yield, we'll look at American Tower, Procter & Gamble, and Intel.

American Tower (NYSE: AMT) is a cell phone tower operator.  Not too long ago, it reorganized as a REIT (real estate investment trust) that pays out a decent 1.2% dividend.  This cash flow king has been crushing it over the past several years, as evidenced by their stock chart below.  I don't think that will stop any time soon.

The business model is relatively simple.  American Tower buys or rents land, puts up a tower, and then rents space on that tower to telecom companies and others that require wireless communication.  Clearly that's an oversimplification, but that explanation allows you to quickly get your arms around the business.

American Tower owns towers mainly in the U.S., Mexico, Central and South America, South Africa, and India.  This company is a great play on the future of cellular networks and wireless communication growth.  The world, especially emerging markets, is nowhere near a saturation point for towers and networks.  American Tower can ride this growth to provide both capital appreciation and (hopefully) increased dividends to their shareholders along the way.

Procter & Gamble (NYSE: PG) is a well-known, well-established, multi-national producer of consumer goods (okay, sorry, I couldn't completely avoid the consumer sector in this article).  This company has been stumbling around for the past couple of years, but it looks like it is starting to get itself together.  The most positive sign of that: revenue growth.  Really, it was back in 2011 that we first starting seeing this growth.  More recently, the company is focusing its efforts on cost cutting and on core products to provide better profitability and continued market share growth.

  

That revenue growth and market share stability now gives investors a reason to jump into the stock.  Only recently has the share price had any meaningful increase, but I expect that trend to continue going through 2013.  The company provides a nice 3.2% dividend yield for you to wait for that next run higher.  Procter & Gamble reports earnings on Friday, Jan. 25, so we'll get a good look at how their growth is trending.

Intel (NASDAQ: INTC) has been struggling of late, though it reported decent earnings on Friday.  Nothing good, but nothing terrible either.  The problem is that there aren't any near-term catalysts to drive the stock price higher.  But I think patient investors will be rewarded.

 

The perception is that Intel will be crippled by shrinking PC demand and that they missed the move into smartphones.  I think that lack of PC demand will hurt them, and there is some merit to the fact that they don't yet have a competitive smartphone product.  However, investors always must look more long-term, and it seems very clear that Intel is laying some important groundwork for the future. 

Namely, they have gone heavily after the data center computing, a high-margin segment that requires Intel's know-how on high performance products.  Intel hasn't yet come out with a "light" chip that can meet the low-energy demands of smart-phones, but they sure know how to produce the beasts for speed.  Why is this segment important?  Because unlike smartphones, where there is a new end-product every year (at least), it's a battle that doesn't have to be constantly fought.  They can win the data center segment and have a dominant, high-margin position for a long-time.

That's also important because it buys them time to establish a leadership position in tablets.  That's no guarantee, but it's certainly an opportunity that investors should consider when evaluating the stock.  With the recent post-earnings sell-off, you're getting a nice opportunity to step into a good long-term story on a forgotten stock.  Intel pays you a 4% dividend yield to wait.

Bottom line

All good portfolios need a combination of growth and stability.  If you're looking for some up and coming companies that could provide extra-large growth as well as dividends, go with Kinder Morgan Energy or American Tower.  If you want some forgotten names that still have big market share and the potential for even greater things ahead, look at Procter & Gamble or Intel, both of which provide big dividends for your patience.

Thanks for reading.  Be on the lookout for stocks #8-10 in our 10 Stock Portfolio for 2013.


Zaegs owns call options in Intel. The Motley Fool recommends American Tower , Intel, and Procter & Gamble. The Motley Fool owns shares of Intel. 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!

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