Back at the end of 2008, I was invited to participate in a stock picking competition by selecting 4 stocks. At the time I simply included the highest yielding stocks in my portfolio – Con Edison (ED), Realty Income (O), Phillip Morris International (PM) and Kinder Morgan (KMP). I believe that as a whole, these stocks would provide dependable income for individuals seeking high current income today. These stocks also possess strong dividend growth characteristics as well, which is essential for investors to keep up with inflation if they spend all of their distributions in a given year.
You could find the reasons for my stock selections below:
Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The company is widely held among dividend investors, and is known as the “Monthly Dividend Company”. Since Realty Income went public in 1994 it has raised dividends consistently, often more than three times per year. Some investors are concerned that Realty Income has a high dividend payout ratio, which stops them from purchasing its shares. The truth is that real-estate investment trusts have to distribute all of their earnings to shareholders in order to avoid being taxed by the IRS. Thus, a more useful gauge for Realty Income’s dividend coverage is its Funds from Operations, which includes earnings per share and certain non cash items such as depreciation expense for example.
This dividend achiever currently yields 6.5%, and is up 18.8% year to date.
Consolidated Edison, Inc., (ED) through its subsidiaries, provides electric, gas, and steam utility services in the United States. People still keep using electricity at the same rate even during recessions, as do businesses as well. This being said, Con Edison’s revenues so far this year have been lower, in comparison to their levels from last year due to the overall weakness in New York’s economy as a whole. The company also recently managed to receive a lower than anticipated increase in its rates to customers. In addition to that there is some uncertainly about the utilities sector as a whole and the smart grid project, which would turn out to be very costly, especially if government subsidies do not cover a major part of those projects. I do like the fact that Con Ed has raised dividends for 35 consecutive years, despite the fact that raises have come at a 1% annual rate as of recently. This dividend aristocrat also spots a healthy 5.7% yield, which a good compensation if you seek current income for the next 5 - 10 years. The stock is up 11.0% year to date.
Philip Morris International Inc (PM) manufactures and sells cigarettes and other tobacco products in markets outside of the United States of America. The company was spun out of Altria Group (MO) in 2008. While it does face declining demand in Western Europe, which accounted for a little less than 50% of its operating income, the company could benefit from growth in emerging markets such as China or India as well as from strategic acquisitions. Add in to that the strong shareholder focused culture of Altria Group, which has always tried to deliver strong and consistent dividend growth and buybacks, and you have a recipe for success. Tobacco usage is not going to stop just like that no matter how much taxes are being levied on the products. The stock currently yields 4.8%, and is up 16.4% year to date.
Kinder Morgan, L.P. (KMP) owns and manages energy transportation and storage assets in North America. The company’s business is all about transporting oil and natural gas in the US, and thus it is not as affected from the rise and fall of energy prices as major producers such as Exxon (XOM) or Chevron (CVX) typically are affected. MLP’s in general are mostly indifferent to fluctuations in commodity prices because they are paid to transport not produce commodities. MLP’s like Kinder Morgan (KMP) typically receive a fixed fee for moving a product over a certain distance through their pipelines. In addition to that there is little competition between pipeline companies for business, as they are almost monopoly like businesses. Thus, their revenues tend to be rather stable. Kinder Morgan is eyeing expansion, which would be accretive to distributable cash flows per unit for the near future.
Kinder Morgan has raised distributions for over a decade, and as such it has been included in the dividend achievers index. The company’s units currently yield 7.7%, and are up 25.7% year to date.
Year to date the portfolio has produced a total return of 17.99%, which is not too bad for a conservative basket of stocks. The price return is only 12% however, which goes on to show that holding dividend stocks during a downturn could be especially rewarding if distributions get reinvested at lower prices.
Check out the performance of the other bloggers year to date returns in the table below:
Intelligent Speculator 73.05%
Four Pillars 44.26%
The Financial Blogger 24.49%
Dividend Growth Investor 12.00%
Million Dollar Journey 8.49%
My Traders Journal -3.16%
I would like to emphasize the fact that successful dividend investing is a long-term process. I strongly doubt that a time frame of less than 15 years is indicative of whether the performance of the stock picks above is sustainable or not. Having a diversified portfolio of at least 30 individual companies from several sectors, sizes and locations is essential in order to be diversified and avoid taking unnecessary risks. Check out the Best Dividend Stock for the Long Run list, which is a good addition to today's post.
This post was included in the Carnival of Personal Finance Edition #227
- Best Yielding Stocks for 2009 2Q Update
- Best High Yield Dividend Stocks for 2009-1Q Update
- Best High Yield Dividend Stocks for 2009
- Best Dividends Stocks for the Long Run
One way to monitor dividend growth investments is by checking the weekly list of dividend increases. I also find helpful to monitor the an...
As I explained in my article on my dividend retirement plan , I invest in blue chip dividend stocks which can afford increase dividends for...
This is a guest post from Tawcan, who writes about dividend investing and financial independence on his blog at tawcan.com When it comes t...
While I am a buy and hold passive investor, I also try to regularly monitor the companies I own . I usually review the investments I have ma...
Successful investing is simple. You live within your means, save money regularly and invest it. You buy a collection of quality businesses a...
The daily life of dividend growth investor Successful investors buy stock in companies which are within their circle of competence. This c...
This is a guest post written by Todd Wenning, CFA, who is an equity research analyst. Todd is the author of Keeping Your Dividend Edge: Str...
PepsiCo, Inc. (NYSE:PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The ...
Johnson & Johnson (NYSE:JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of vario...
Diageo plc (DEO) produces, distills, brews, bottles, packages, and distributes spirits, beer, wine, and ready to drink beverages. This inter...