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5 Boring Stocks, 5 Sexy Yields
Posted by: Charles Sizemore (IP Logged)
Date: May 2, 2012 09:17AM
Investing is not all that different from choosing a spouse. At some point in every man’s life, he has to make a choice. Does he go for the alluring but volatile young vixen who will ultimately put him in an early grave, or does he take the more rational course of action and choose a mature, dependable companion to spend his life with? (Women face similar choices themselves; to marry the handsome but unpredictable young buck or the more stable—if somewhat boring—workhorse?).
It’s nice if you can have it all, of course; romance and stability in a partner.
For investors, much the same can be said about stocks. Sexy “glamour” stocks—and the heartburn they often bring—are best left to shorter-term traders. Bonds offer stability but nothing in the way of excitement. If you are looking for something in the middle—predictable, long-term wealth building—dividend-paying stocks are likely your best option. They allow you reach your financial goals while still managing to sleep at night.
Today, I’m going to recommend five boring stocks with sexy yields. We’ll start with that most mundane of American retailers Wal-Mart (WMT).
Wal-Mart is about as dull as it gets as a company; the world’s largest retailer of the basic “stuff” of modern life—everything from food to build-it-yourself furniture.
But Wal-Mart also happens to be a dividend-growing dynamo. In 2002, just 10 years ago, Wal-Mart paid $0.075 per quarter in dividends. Today, it pays $0.398—an increase of more than five times.
With Wal-Mart’s domestic expansion slowing in the years ahead (and thus needing less cash for investment), I expect the company to continue aggressively raising its dividend. The stock currently yields an attractive 2.7%, which is substantially more than what most bonds pay.
Next on the list is consumer products giant Kimberly-Clark (KMB). If you thought it was impossible for a company to be more boring than Wal-Mart, then you failed to consider Kimberly-Clark. The company manufactures and sells diapers, Kleenex, and other basic products you might find in your bathroom.
But like Wal-Mart, Kimberly-Clark is a dividend-raising dynamo. Over the past decade, its quarterly dividend has risen from $0.30 to $0.74; not too shabby when you consider what a volatile decade it has been. Kimberly-Clark currently yields 3.7%.
I can’t mention Kimberly-Clark without mentioning its much larger rival Procter & Gamble (PG). Chances are good that half or more of the products in your bathroom and laundry room were made by Procter & Gamble, at least if you are an American (overseas, rival Unilever (UL) tends to dominate). They make Crest toothpaste, Gillette razors, Charmin toilet paper, and Pampers diapers, among many, many other brands. This is a company that Warren Buffett has dabbled in for years, and it’s easy to understand why. Demand for its products is stable, and its brands have incredible intangible value.
Over the past decade, P&G has raised its quarterly dividend from $0.19 to $0.562; again, not a bad run. The stock currently yields 3.5%.
Moving on, let’s take a look at the oh-so-boring world of natural gas transportation. On this front, I recommend Williams Companies (NYSE: WMB).
Stop for a minute and think. Can you think of anything more boring than natural gas transportation? Yeah, me neither.
But William’s dullness is its strength. Natural gas pipelines are stable, predictable businesses, regardless of what happens to the price of gas. And if anything, the current glut in natural gas supplies should bode well for pipeline companies like Williams. Cheaper prices encourage higher consumption.
Williams Companies is an IRA-friendly way to get access to the master limited partnership Williams Partners (WPZ). For tax reasons that go beyond the scope of this article, master limited partnerships cannot be held in IRA accounts. But as a corporation with a large ownership interest in a partnership, WMB can.
Williams Companies currently yields 3.1%, and I expect this to rise substantially over time.
Finally, I want to put out one recommendation that is likely to get your pulse racing a little more than the rest: Spanish telecom juggernaut Telefonica (TEF).
There is little more boring than a telecom utility. While you may “ooh and ah” over your latest iPhone, you generally spend very little time thinking about the company that provides cellular service to it.
Telefonica would have to be considered “riskier” than the rest of these recommendations by virtue of being domiciled in Spain. But with a yield of over 11% at current prices, I consider it a risk worth taking.
Telefonica gets nearly half of its revenues from the fast-growing markets of Latin America, so continued recessionary conditions in Spain do not present an undue risk to Telefonica’s business. Disruptions to the European financial system could result in the company cutting its dividend to preserve cash, but I consider this unlikely and, again, a risk worth taking for the potential rewards.
Disclosures: All securities mentioned are holdings of the Sizemore Capital Dividend Growth Portfolio.
Stocks Discussed: WMT, KMB, PG, TEF, WPZ, UL, WMB,