Are (Rising) Dividend Stocks the New Bonds?Submitted by Financial Planning Hawaii on March 17th, 2014
The investment climate for people seeking income from their portfolios is decidedly unaccommodating. Historically, income needs for conservative portfolios have been met through laddered (i.e., staggered maturities) bond/CD portfolios and/or bond mutual funds. However, with interest rates still hovering near all-time lows, not only are investors faced with paltry yields, the market risk from purchasing bonds (i.e., the risk that bond values will fall as interest rates rise) is arguably as high as it has ever been too.
In my opinion, investors have two choices – either park money in cash and wait for interest rates to rise or turn to stock dividends. With respect to the latter, dividend stocks, have two distinct advantages that that they did not enjoy in the previous century – (1) dividends are tax-favored relative to ordinary interest income and (2) capital gains tax on appreciation is capped at 20%. These days, dividend yields from well-known large cap companies are commonly in the 2-4% range and often compare favorably to bank deposit yields and even bonds. Additionally, by focusing on companies with established patterns of annual dividend increases, rising dividend stocks may offer inflation protection that traditional fixed income investments cannot.
Below is a list of my current favorite “rising dividend” companies. Although there is obviously no guarantee that these companies will continue to increase or even maintain their dividends and an investment in any stock involves both company specific risk and overall market risk, in a world where bonds are low yielding and risky too, I believe income-oriented investors could do worse than to hold a portfolio comprised of these companies.
John R.’s “Rising Dividend” Favorites (Share prices are as of 2/21/14)
Chevron Texaco (CVX) – NYSE: $113.38
Deere & Co. (DE) – NYSE: $85.01
Exxon Mobil (XOM) – NYSE: $95.32
IBM (IBM) – NYSE: $95.32
Illinois Tool Works (ITW) – NYSE: $81.55
Intel (INTC) – NASDAQ: $24.52
Johnson & Johnson (JNJ) – NYSE: $92.20
Medtronic (MDT) – NYSE: $57.69
Microsoft (MSFT) – NASDAQ $38.25
Norfolk Southern (NSC) – NYSE: $90.83
Stanley Works (SWK) – NYSE: $81.52
Common themes from this list include companies trading off their highs, at low-reasonable P/Es, and at least ten consecutive years of dividend increases. Fundamental data for each company, including current market price, P/E, dividend yield, trading range, and dividend and earnings histories, may be obtained from visiting the Market Pulse website.
Important Disclosures - The author of this piece, John H. Robinson, holds nominal positions in Chevron Texaco, IBM, Illinois Tool Works, Intel, Johnson & Johnson, Medtronic, Microsoft, Norfolk Southern, and Stanley works in his individual retirement accounts.
The publication of this piece implies no assurances that purchases of the securities referenced herein will be profitable nor should it be assumed that any recommendations made in the future will be profitable or will equal the performance of the securities in this list. The information contained herein is intended for informational purposes only. Any opinions are those of John H. Robinson and not necessarily those of J.W. Cole Financial, Inc. member FINRA/SIPC or J.W. Cole Advisors, Inc. This information is not intended as a solicitation or an offer to buy or sell any security. Investments and strategies mentioned may not be suitable for all investors. Individual investor’s results will vary. Past performance is no guarantee of future results. As with all investments, various risks may exists and J.W. Cole recommends you consult with your financial advisor prior to making any investment decisions.