A Better Investing Strategy
After practically ignoring geopolitical events an pushing higher despite the unrest in Egypt, U.S. markets finally succumbed to heavy selling this week as protests in Libya and the Middle East erupted, and oil surpassed $100 per barrel. But there’s a much better way to manage your investments than by reacting to the latest headlines. You need a strategy that works in fair weather and foul, 365 days a year. It’s a strategy that can be summed up in two simple words: safe and cheap.
Our high-income experts have put together a list of top dividend stocks to buy that offer investors just that. The yields these steady stocks are throwing off can help to cushion your portfolio if the market continues to react negatively to world events or if the economy continues to struggle. And the recent sell-off is providing you a stellar opportunity to pick up these already discounted dividend stocks at an even cheaper price.
Here are your top dividend stocks for March:
In the past 12 months, low-risk Hormel Foods (NYSE: HRL), with a beta of 0.547, has outperformed the S&P 500 by 5.4 percentage points. When personal incomes drop, people strip out the luxuries — eating out less and trading down from ham to SPAM.
Personal income growth has slowed from a peak of 14% in July of 1981, to a sluggish 3.8% in December 2010. With continued 9% unemployment and millions of Americans out of work, don’t expect them to show up at Whole Foods looking for organics; expect them to be hitting classic American favorites like Dinty Moore, Saag’s, Hormel and SPAM.
My long-term trend chart shows Hormel reverting to trend. Buy before it does. Current yield: 3.8%.
Dividend Stock #2 – Nestle (NSRGY)
The envy of every other processed-food maker in the world, Swiss-based Nestle (OTC: NSRGY) boasts top-of-class manufacturing and marketing, as well as a widely diversified product line — from chocolates and cocoa to milk products (including ice cream), juices, coffees and teas, pasta, seasonings and frozen entrees.
The stock, a true long-distance thoroughbred, has more than doubled in the past 10 years, compared with a miserly 12% increase in the Dow. Yet NSRGY finds itself today about 8% below its December peak. You’re getting a rare discount on a premium franchise.
Buy NSRGY at $55 or less. Current yield: 3.5%.
Dividend Stock #3 – Pepsico (PEP)
More than just an all-American soft-drink company, Pepsico (NYSE: PEP) also produces snacks (Lays, Doritos) and breakfast cereal (Quaker Oats). Like most food makers, Pepsico has faced a margin squeeze lately, thanks to the steep run-up in commodity prices. Eventually, however, I’m confident PEP will manage to do what it has done ever since 1898 — raise prices enough on its finished products to recoup input costs.
Meanwhile, at 14 times estimated 2011 earnings, the shares are trading 35% below the valuation the fetched at the October 2007 market top. PEP also has a record of 38 annual dividend increases in a row. A stock this cheap should easily outpace the broad market indexes over the next 10 years — just as it has done over the past 10.
Buy PEP at $66 or less. Current yield: 3%.
Dividend Stock #4 – Cheniere Energy (CQP)
Cheniere Energy Partners LP (AMEX: CQP) is the operator of the largest liquefied natural gas (LNG) terminal in the United States. The company is striking more deals with new energy customers, setting up the eventual export of natural gas overseas.
The chart of CQP is very constructive, setting up for a big move higher on the next set of headlines.
Buy CQP up to $23. Current yield: 7.44%.
Dividend Stock #5 – Alexander & Baldwin (ALEX)
Alexander & Baldwin (NYSE: ALEX) operates in transportation, real estate and agribusiness industries in the United States. In the fourth quarter, container trade at the port of Long Beach, Calif., rebounded, and increased 24% compared to the year before. ALEX has added a second leg to its China-Long Beach Express route, to expand its position in container-trade shipping business. During 2010, ALEX recorded an 81% increase in its volume of China container shipping business compared to 2009.
My price chart shows ALEX’s powerful breakout above $40. Buy on that bullish signal. Current yield: 3.06%.
Dividend Stock #6 – California Water Service (CWT)
Water utility stock California Water Service (NYSE: CWT), which supplies water and related services in California, Washington, New Mexico and Hawaii, has increased its dividend for 44 consecutive years — even during the Great Recession of 2008, which hurt the Golden State more than most.
At 16 time estimated 2011 earnings, CWT is noticeably cheaper than competitor Aqua America (NYSE: WTR), which commands 24 times. The valuation gap could prompt WTR — or some other acquisitive party — to make a bid for CWT.
Buy CWT at $36.50 or less. Current yield: 3.4%.
Dividend Stock #7 – NuStar Energy (NS)
The fourth quarter was a breakout for NuStar Energy (NYSE: NS), with record-setting earnings and cash flows distributable to limited partners. NuStar’s storage facilities segment led the way, selling storage in 275 tanks across the United States and Mexico, with a combined capacity of 18.7 million barrels of petroleum and refined petroleum products. For comparison, that’s equal to a full day’s worth of U.S. consumption. After falling flat on its back in relative-strength terms, my chart shows NuStar picking up strength.
Buy NS at market. Current yield: 6.26%.
Dividend Stock #8 – Ship Finance (SFL)
Ship Finance International Limited (NYSE: SFL) recently reported fourth-quarter numbers that came in 5 cents short of estimates, but raised the quarterly dividend and provided a rosier outlook for 2011, sending its shares higher following earnings.
Global trade is rebounding, which, in turn, should provide stronger profits ahead for cargo operators. When a stock shrugs off short-term disappointment at the expense of a better-looking future, it pays to buy the shares.
Buy SFL up to $23. Current yield 6.95%.
