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Favorite Dividend-Paying Stocks for 2005
What looks good for 2005? With the new tax laws that give big breaks for income received as stock dividends (even in the highest income bracket, you would pay only 15% in federal income tax on dividend payments), this year I'm leaning toward good stocks with good dividends. Here are some of my early favorites for 2005:
Kinder Morgan Energy Partners
NYSE: KMP www.kindermorgan.com
Kinder Morgan Energy Partners is a major mover in the U.S. fuel market. It owns and operates more than 25,000 miles of pipeline used to transport fuel and natural gas around the country. It is the nations largest publicly traded pipeline limited partnership and the largest independent refined petroleum products pipeline system in the U.S. in terms of volumes delivered.
The Houston-based company pays a dividend of around 6.5% and has seen its revenue and earnings grow consistently over the past 10 years.
Bank of America
NYSE: BAC www.bankofamerica.com
Bank of America was created in 1998 through the merger of NationsBank and Bank America. The Charlotte, North Carolina, operation added significantly to its size and clout in 2004 when it completed the acquisition of FleetBoston Financial. With the addition of FleetBoston, the company has become one of the largest banking organizations in the U.S., with branches on both coasts as well as throughout much of the Southwest and Central U.S. In all Bank of America has about 5,700 branch offices in 29 states and the District of Columbia, It operates 16,500 ATMs, and boasts about 9 million online banking customers. It also has significant international operations, with offices in 31 countries in Europe, Asia and North and South America, and clients in about 150 countries.
The Charlotte, NC, company pays a dividend of around 4%, and has seen its earnings and revenue climb consistently over the past few years.
Fifth Third Bancorp
NASDAQ: FITB www.53.com
Fifth Third Bancorp has been one of the nations fastest growing and most profitable banks over the past two decades. The Cincinnati-based institution operates 17 affiliates with about 1,000 branch offices, including 130 Bank Marts located in supermarkets. The company also operates a network of 1,844 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee and West Virginia.
Following a recent drop in its stock price, the dividend has climbed up to about 4%. The firm has raised its dividend more than 15 consecutive years, including a 140% increase in the dividend payout over the past five years.
Total S.A.
NYSE: TOT (trades as an ADR) www.total.com
A French-based oil and gas conglomerate, Total S.A. has been one of the most consistent performers in the ever-volatile energy industry. The stock, which trades in the U.S. on the New York Stock Exchange as an ADR (American Depository Receipt), has raised its dividends the past 10 consecutive years. Total was created as the result of a merger between three of Europes largest gas and oil companies. Total merged with PetroFina in 1998 and Elf Aquitaine in 2000. In all, the firm has about 18,000 retail service stations throughout the U.S. and Europe. Totals average daily production level is 1.66 million barrels of crude oil and 4.8 million cubic feet of natural gas.
The company pays a dividend of about 3.3%, and has raised it 10 consecutive years, with a five-year increase of about 118%.
Duke Realty Corp.
NYSE: DRE www.dukerealty.com
Duke Realty owns a broad portfolio of real estate properties that is diversified by both type and location. The Indianapolis-based real estate investment trust (REIT) owns and operates industrial, office and retail buildings in 13 U.S. cities, primarily in the Midwest and Southeast..In all, Duke owns and operates about 900 properties encompassing more than 118 million square feet of building space. It also owns about 3,900 acres of undeveloped land that could be developed later. The company has a total market capitalization (real estate properties) of about $8 billion. Duke pays a dividend of about 5.5%, and has raised its dividend 10 consecutive years.
For more information on dividend-paying stocks, check out The 100 Best Dividend-Paying Stocks to Own in America.
Archives of Previous Picks
(6/20/03) After the recent run-up, finding stocks with decent P/Es has become even more difficult. I tried to find a couple of companies that are still trading at a safe level, and may benefit from an uptick in the economy and the investment markets. Here are my two picks:
Automatic Data Processing (ADP). ADP is the nation's leading processor of payroll checks. This company has had 50 consecutive years of record earnings and revenue, but the growth has been slow lately because of a slow economy and lay-offs at companies across the country. But as the economy improves and companies begin rehiring, ADP should see a jump in business. The stock now has a PE of about 19 (its lowest in years) and pays a dividend of about 1.3%.
Alliance Capital Management (AC). AC manages dozens of mutual funds as well as retirement funds for hundreds of large U.S. companies. Before the crash, this was the best stock in the investment arena, but it has been hard hit by the market's swoon. However, as the market rises, AC's prospects rise with it. It still has a decent PE of about 19, and pays an excellent 4 percent dividend yield. Like most stocks on the market, AC has had strong growth the past couple of months, but if the bull market continues, AC could see steady growth for some time to come.
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(9/9/02) With 9/11 coming up, it's a nervous week in the market, but with the Dow in the low 8000s, many stocks seem fairly priced. Here are three blue chip stocks that seem to be on the right track:
Pitney Bowes (PBI) The world's leading postage equipment maker has seen its earnings growth drop recently--due partly to the week economy and partly to more use of email. But things seem to be turning around there, with better earnings projected for the next couple of years. With a recent stock price of about $34, it has a PE of 17 and a attractive dividend yield of 3.4%.
ABM Industries (ABM) This company is a leader in many types of corporate services, including engineering, janitorial, and security services. After a weak 2001, ABM is doing well this year, and its earnings growth is expected to continue. With a recent stock price of about 16, it a PE of 25 and a dividend yield of about 2.1%.
Equifax (EFX). Equifax is the nation's largest credit reporting operation, providing consumer credit reports for banks, retailers, finanical institutions, utilities, oil companies, credit card companies and mortgage lenders. After a weak 2001, earnings have been growing nicely this year, and are projected to continue to rise. With a recent price of about $21, it has a PE of 23. Equifax pays a small dividend, with a yield of 0.4%.
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(8/19/02) The market finally seems to have stabilized a little--although that seems to change from day to day, hour to hour. But I have noticed a growing chorus of experts who believe there are some good values in the market right now. Those values may not look so good once the Dow advances past the 10,000 mark--unless we get a real uptick in the economy. Once that happens, anything goes. But for now, there are a good number of stocks that look like good values at these prices. Here are some stocks that might be worth an investment at this time:
Automatic Data Processing (ADP). The world's leading processor of payroll checks and related services, ADP has posted more than 50 consecutive years of record earnings. The stock is usually richly valued because of its incredible consistency, but now that the market has fallen, ADP has a PE of about 21. That's a good price for this stock compared with its PEs of the past coulpe of years. Part of the fun of investing in stocks is finding a great stock at a good price. This may be the time for ADP.
Amgen (AMGN) One of the best and oldest of the biotechnology companies, Amgen has huge long-term potential, and is a favorite of Wall Street analysts. Biggest problem? Buying the stock at a decent price. It is currently more than $20 below its 52-week high. And while the 41 PE is no bargain compared with the overall market, it's low compared with its earlier PEs. The stock could fall more, but with the type of long-term prospects this company offers, now may be a good time to buy a few shares.
Best Buy (BBY) The nation's leading electronics retailer has experienced a tough quarter after surprising analysts with strong returns in many of its previous quarters. But with Christmas shopping season just around the corner, Best Buy could certainly be expected to perk back up. In the meantime, the market may have overreacted to the company's earnings warning. The stock, which often carries a fairly high PE, now has a PE of just 13. The stock is at about $23, down from a 52-week high of about $54. This is a solid company that should roar back in an economic recovery.
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(8/5/02) As the market continues to slump, solid companies that pay good dividends look increasingly attractive. A number of stocks are paying 5 percent or above, which is far better than you would get in the bank or with a CD or other interest-bearing investment. And dividend-paying stocks tend to increase the dividend each year. Plus, you would also get the benefit of capital appreciation--assuming the stock market EVER goes back up (which I believe it will some day; I know that's going out on a thin limb considering the carnage of the past two years, but from a historical perspective, by all rights, the market should someday rebound.) Here are three solid companies that pay excellent dividends:
Kinder Morgan Energy Partners (KMP) The firm operates more than 10,000 miles of petroleum pipelines and more than 10,000 miles of natural gas pipelines. It pays a dividend of about 8.5 percent. (Recent price: $29)
Teppco Partners (TPP) The company operates pipelines of refined peterleum products and gas and provides crude oil transportation. The firm pays a dividend of about 8 percent. (Recent price: $29.50)
Sempra Energy (SRE) The California-based energy services company operates San Diego Gas & Electric and Southern California Gas Company. It pays a dividend of about 5 percent. (Recent price: $21)
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(7/29/02) The recent decline in the Dow has brought a brief opportunity to buy some great stocks that had been too expensive before the market's decline. The following three stocks have been outstanding growing companies for many years, but in the recent past, their stock price and price earnings ratios had been so high that there was little incentive to buy more shares. Now would seem to be a good time to grab a few shares of these great companies:
Medtronic (MDT). The world's leading heart pacemaker manufacturer continues to develop new products and acquire leading small companies in the implantable device business.
Johnson & Johnson (JNJ) This fabled medical powerhouse has had consistent growth for decades, and shows no signs of slowing down.
Harley Davidson (HDI) The world's leading motorcycle maker has posted growing earnings for the past decade, and the growth is expected to continue for years to come. But Harley has also been a popular stock with investors, which helped push the PE ratio to an excessive level. The drop in the market has finally turned Harley into a fairly attractive buy.
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(7/22/02) The recent drop in stock prices has made for some very enticing picks for income-oriented investors. The falling stock prices have boosted the dividend yields of many stocks to very attractive levels. And when you consider that banks and CDs pay next to nothing, buying stocks with dividends of 6 to 8 percent seems particularly inticing. So the featured stocks today all offer very attractive dividends:
Health Care Propery Investment Trust (HCP). The company invests in health care related propoerties such as medical office buildings and long term care facilities. It currently pays a dividend of nearly 8 percent. Its PE is a fairly high 23, but earnings are growing at a very strong pace.
Kinder Morgan Energy Partners (KMP) This oil and natural gas pipeline limited partnership has been racking up excellent earnings and revenue growth, and it offers a dividend yield of nearly 8 percent. It has a price earnings ratio of about 18, which seems fairly safe considering the company's solid growth prospects.
Con Edison (ED). While earnings and revenue are expected to be flat this year because of mild weather in the New York area, Con Ed has solid long term prospects. It pays a dividend of about 6.5 percent, and has a low PE of about 11.
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(7/15/02) The steep drop in the market recently has finally started to usher in what looks like some bargains in the blue chip sector. There are still many stocks with excessive price-earnings ratios, but there are also a growing number of companies with very attractive PEs. Here are three that look fairly cheap right now:
Toll Brothers (TOL) The company is a leading builder of homes in 21 states. it builds single family detached and attached homes in middle and high income communities (and arranges financing). The market for homes has remained unexpectedly high through this recession, which has really helped Toll. The company has a PE of just 9, while reporting growing earnings and revenue.
Alliance Capital (AC) This large investment concern handles retirement accounts for many of the Fortune 500 companies, and offers more than 100 mutual funds. The stock has dropped significantly this year, but it looks very tempting now because it now pays a dividend of about 9 percent. Its earnings are projected to grow at a nice pace the next two years, and its PE is a respectable 15.
Abbott Labs (ABT) THis medical products manufacturer has shown strong earnings and revenue growth. It has a PE of 19, which is at the low end of the medical sector. The company also pays a dividend of about 3 percent.
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(7/8/02) We're finally starting to see some good news from the economy, particularly in the manufacturing sector. Manufacturing has been increasing nearly every month this year, which is a sign of a recovering economy. There are still many problems in the economy, including the dismal telecommunications outlook and tepid consumer confidence, but at least there are some areas of the economy that are showing signs of life. The biggest drag on the blue chip segment continues to be very high price-earnings ratios. If we see some earnings turn-arounds, that could make up for the high PEs, but many stocks are already so high that they'll need a convincing jump in earnings just to keep from dropping. In this environment, I'm lookng for companies that have solid growth with reasonable PEs. Two of the following three picks (Valspar and Ecolab) fit that mold, while the third (Ebay) is one that doesn't fit that mold, but should be good as a long-term hold:
Valspar (VAL). The well-known paint manufacturer has shown very solid earnings growth recently, and reports solid prospects for the future. Its PE is rather high at about 29, but its earnings growth could compensate for the PE.
Ecolabs (ECL). Like Valspar, Ecolabs has a PE in the 30 range, but is in the midst of a strong earnings rebound. The company does best when the economy is strong, so it could rebound very well as the economy returns to full strength. Ecolabs is the world's leading manufacturer of maintenance products and services for the hospitality, institutional and industrial markets. It sells cleaning products to hotels, restaurants, food service operations, light industry, and health care and educational facilities.
Ebay (EBAY). With a PE of about 150, this is no bargain stock. But its earnings are growing at a tremendous pace. The online auction site is probably the most financially-successful site on the Web, and its popularity grows every year. It recently purchased PayPal, an online payment system provider that has also been one of the few big success stories on the Web, so that should help boost eBay's long-term prospects.
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The market and economy continue to struggle, although, inch by inch, the economy seems to be ecking out a recovery. Unfortunately, we still hear words like "double-dip" (as in double-dip recession) although most economists don't expect that to happen. Once again this week I'm looking for stocks with good earnings and reasonable P/E ratios--not an easy search in this market, where, despite a long period of decline, many stocks still appear to be overpriced based on their PE ratios. Here are my spotlight stocks for this week:
Donaldson (DCI). A manufacturer of filtration systems for engines and related products has had 12 consecutive yeasrs of earnings growth, and appears this year to be heading for another year of solid earnings growth. With a stock price of $37 and a PE of about 20, Donaldson's looks like a fairly solid pick. Here is how the company describes its operations: Donaldson Company, Inc., headquartered in Minneapolis, Minn., is a leading worldwide provider of filtration systems and replacement parts. Founded in 1915, Donaldson...serves customers in the industrial and engine markets including dust collection, power generation, specialty filtration, off-road equipment, industrial compressors and trucks. More than 8,100 employees contribute to the company's success at 40 manufacturing locations around the world. In fiscal year 2001, Donaldson reported record sales of more than $1.1 billion and achieved its 12th consecutive year of double-digit earnings growth. Donaldson is a member of the S&P MidCap 400 Index and Additional company information is available at www.donaldson.com
Bemis (BMS). Nothing fancy about this company, but it does have a relatively low PE and a decent earnings growth rate. Founded in 1858, Bemis is the North America's largest manufactuer of flexible packaging for foods and other products. The company has a PE of about 18 while its earnings are expected to grow at about 10 to 12 percent the next two years. It also pays a dividend of about 2 percent.
Linear Technology (LLTC). There was a recent jump in semiconductor orders, which means that the chip market might be headed out of its slump. Linear has long been one of the world's leading (and most profitable) microchip manufacturing operation. It dopes have a very high PE of nearly 50, so it's no bargain, but after a very sluggish (but profitable) year this year, the company is expected to see its earnings pick up dramatically next year. But that, of course, depends on a decent economic recovery, so ther is certainly some risk in this stock.
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Considering how poorly the market has done the past couple of years, it seems like there should be a lot of cheap stocks from which to choose. But in truth, the better quality stocks still tend to be very expensive, based on their price earnings ratios. Many leading blue chips have PEs of around 30 or higher, which is certainly no bargain.
This week I`ve picked three blue chip stocks that have reasonable PEs and solid earnings growth momentum:
Omnicom (OMC) The world`s leading advertising agency seems to have survived the recession, and expects to see its earnings climb at a rate of about 12 to 15 percent the next two years. It has a PE of about 25.
Home Depot (HD) Historically, HD has had an astromical PE because of its rapid growth. Its growth has slowed a little, but earnings are still projected to move up at a 12 to 20 percent pace the next couple of years. And the PE has fallen to 28, so the stock does not look over priced.
Household Intl. (HI) This is a company that makes high interest loans to high risk consumers. In tough times you might think Household would have some worries about collecting on its debts. But the firm charges very high interest rates, which compensate for the risks. And now its base of prospects may have swollen because of the economic hardships under this recession. The stock has a PE of just 12, and it expects to have double-digit earnings growth the next couple of years. It also pays a dividend of about nearly 2 percent.
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The overall market is still staggering so I think you need to look for individual stocks that stand above the crowd for one reason or another. Here are three stocks that fit that mold:
Fannie Mae (FNM). With mortgage rates at their lowest level yet, home loans should continue to be strong, and Fannie Mae, which is the nation`s leading provider of mortgage financing, should benefit. The company has a long history of solid revenue and earnigns growth.
General Electric (GE). I`m always suspicous of stocks that are dropping, and GE has definitely been dropping over concerns about its GE Capital operations that could affect GE`s bottom line and its overall value. But the company is expected to have increasing earnigns the next year or two, and it`s stock price has dropped to about $30 a share. Its PE of 21 is fairly low for a blue chip stock in this market. So it may be time to snap up a few shares of this outstanding company.
Cerner (CERN). A source of mine in the technology business says Cerner is hiring as fast it can find able bodies, which is incredible news in this economy. Here is a description of the company: "Cerner Corporation designs, develops, markets, installs and supports information systems and content solutions for health organizations and consumers. For the 13 weeks ended 3/30/02, revenues increased 45% to $175.3M. Net income increased 64% to $10.4M. Results reflect continued strong demand for licensed software, and a stronger than expected level of third party sales. Net income also reflects improved gross margins."
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In an uncertain stock market like this one, I`m looking for stocks that should do well over the long-term, despite the short-term volatility. That`s why I`ve picked the following five stocks:
Abbott Labs (ABT). The medical products company has a long history of consistent earnings and revenue growth, and has solid expectations for growth in the next two years. Abbott is one of the world`s leading makers of blood screening equipment and other diagnostic tests and equipment.
Fiserv (FISV). This is not a well-known company to many investors, but it is big in the banking and financial arena. Fiserv is the nation`s largest data processing provider for banks and savings institutions. Business continues to boom for the banking and lending sector because of low interest rates, and Fiserv benefits from the strength of that business. Its earnings and revenue continue to climb at more than 15 percent per year.
Anheuser-Busch (BUD). Beer consumption is staying strong, and A-B is the worldest leading brewer. The company`s earnings and revenue continue to climb, and estimates are solid for the next two years.
Cardinal Health (CAH). One of the nation`s leading distributors of medical products, Cardinal has had many years of sustained earnings and revenue growth, and the company`s prospects continue to look very solid for the next couple of years.
Medtronic (MDT). Always one of my favorites, Medtronic is the world`s leading heart pacemaker manufacturer, and the leading maker of implantable medical devices. Although the stock price has been flat the past two years, the future looks very bright for Medtronic.
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