"Do you know the only thing that gives me pleasure? It's to see my dividends coming in." -- John D. Rockefeller
I'm still having a hard time with how to assess what occurred in the first quarter of 2013. Granted, heading into the New Year, not much was expected, especially since the fiscal cliff had been such an overhang. However, with all of the major indices making new highs, calling the first quarter anything but positive seems irrational.
However, here too is an example of the growing disconnect from the standpoint that the stock market is not always a fair representation of the overall economy. Unemployment is still too high. This is despite rising corporate earrings. What's more, there's that "sequestration thing" that reminds us that we don't quite have things figured out yet. This is despite what the records the stock market may break.
All of this points to one thing; prudent investing is still the best approach to take. Stocks can go up and they can go down, but value will always be there. To that end, I have begun to focus on dividend investing more so than I have before. In fact, the Dow's robust growth has been due to some of the best dividend payers on the market. However, not all payers are the same.
To that end, I'm also beginning to wonder how money may flow out of one sector into the next or should investors expect the same level of performances that we have seen so far? As such here are several names that have recently met my criteria of both growth and income.
AT&T, Inc. (T)
I recently asked if the market is still discounting Cisco. As disappointing as the past couple of years have been, there are certainly plenty of reasons to suspect that the worst is behind the company and it deserves a tremendous amount of credit for what it has been able to accomplish in a relatively short period of time.
I'm not suggesting that this is a flawless company. But there are also several reasons to expect more share gains ahead, including the fact that the company just delivered its seventh consecutive earnings beat. In the most recent quarter, year-over-year revenue growth arrived at 5%, while advancing 2% sequentially. This is despite struggles in hardware (routing and switching).
However, as the hardware business has struggled, management has been investing heavily to shore up Cisco's cloud position, while also picking off several companies that strengthen Cisco's software defined networking, or SDN, position. It's been clear from Cisco's recent acquisitions that the company is phasing out its focus on hardware.
This is an excellent strategic move, especially since hardware margins aren't that impressive. The company has become a savvy acquirer and has used the recent macro headwind to its advantage. This is while rivals have been looking for ways to cut costs. What's more, Cisco's strong fundamentals, which include $46 billion in cash, can buy access into many markets.
This is not an advantage that the competition has. All of this makes Cisco still one of the best and safest stocks to own. Based on cash flow projections and sales trends, which includes 22% aggregate growth in services, this stock is worth (at least) $30 per share.
There's still plenty of good in Microsoft despite what the bears may want to believe. I recently asked if Steve Ballmer was still the right guy to lead Microsoft. But regardless of how you feel about Microsoft and its grim prospects against Apple (AAPL) and Google (GOOG), the company still has a business with very good returns on capital and excellent cash flow. And it also helps that it pays an excellent dividend.
I won't disagree that Microsoft's mobile efforts are lagging. And in the realm of the cloud, the company still ranks behind the likes of Salesforce.com (CRM) and Oracle (ORCL). However, that 80% of Microsoft's revenue still comes from businesses proves how strong its Windows and Office franchises still are. And there are no noticeable signs of weakness.
Yet this continues to be a popularly cited bear argument. The company will most likely never grow again in a way that resembles the mid- to late-90s. But that does not mean Microsoft does not have life. It has been considered the sleeping giant and remains only one good idea away from being awakened. And when it does, $35 per share will be a realistic destination.
Perhaps one of the best reasons to own AT&T is for its strong dividend yields, which currently is at 4.9%. AT&T has been considered a safe haven of sorts for a number of years because of its solid market beating performances and yet the future is even brighter from the standpoint of the demand that it will generate for its network.
The company not only features one of the better 3G and 4G networks, but also has a wide selection of wireless products highlighted by Apple's iPhone and devices on Google's Android platform. The company is in a great position to add to its customer base. In fact, subscriber growth increased faster last quarter (1.3 million new wireless customers) than the previous two and a half years.
Consolidated revenues continue to grow at an impressive rate each quarter. As the competition sorts itself out, the company's management is doing an excellent job of focusing on adding shareholder value. New phone models from Apple and Samsung along with continual network expansion have proven to be the game-changer that AT&T needed to propel the stock going forward. That hefty dividend also makes it an appealing stock to hold regardless of what might be ailing the market.
There's always been a lot to like with database giant Oracle. Its strong cash position, deep market penetration, and innovative strategies have positioned its stock as one of the bright spots in today's recovering market. Granted third quarter earnings weren't great. But the market overreacted to what is known to be typically weak quarter for Oracle.
Revenue arrived at $8.9 billion, representing a 1% drop year over year and falling short of Street targets of $9.38 billion. Management said that the decline was due to a "lack of urgency" within its sales force, particularly from those that were newly hired. However, this isn't something that would concern me. It means is that revenue is being pushed out farther than expected.
What's more, this had very little impact on profitability. Net income arrived at $2.5 billion, or $0.52 per share. Excluding items, earnings rose to $0.65 per share. As bullish as I am on the company, I will concede that there are some legitimate threats out there to its business, specifically with the emergence of the cloud. But no other company has emerged to the extent where it forces me think that Oracle should be concerned about its status.
These numbers were not great. But relative to expectations, they weren't that bad, either. Oracle realizes that it cannot rest on its laurels because the competition for its current business as well as those heading for the cloud is growing increasingly fierce. In the meantime, I would be a buyer here on this weakness.
With 2013 earnings estimates being $2.69 per share, the stock is now trading at a P/E of just 12, or 6 below the S&P 500 average of stocks in Oracle's category. In a market where stocks often take off and never look back, Oracle is now giving opportunistic investors a second change to buy. It's too good to pass up, especially when the company just entered the thriving telecom market to compete with Cisco.
Managing risk and avoiding losses are the surest ways to stay in the green even in the toughest bear markets. One of the ways to avoid some sleepless nights is to understand that dividends do in fact matter. A dividend check can often be the difference between an investor holding through some tough economic times or opting to cut their losses and moving on. In 2013, I will be looking for such companies. Though growth will always come at a premium, dividend issuing companies make waiting for growth a tad easier.