What’s a dividend genius? Someone that can pick undervalued, high yielding dividend stocks that have held up in the face of inflationary pressures in the past and will be able to maintain dividends in the future. Here are our picks for the 2011 dividend genius portfolio, plus some commentary on each. Can you think of any other names that should be on the list?
Abbott Laboratories (ABT): This pharmaceutical powerhouse yields 3.85% and has a history of raising its dividend. The company's portfolio of patent protected drugs, along with its excellent nutritional and diagnostic groups and its history of strategic acquisitions, have dug ABT a wide economic moat, which is one of the reasons we think Warren Buffett might buy this stock.
Annaly Capital Management (NLY): This REIT has been around since 1997, and has paid a healthy quarterly dividend going back 10 years. The most recent dividend was $0.64, which is a 14.7 percent current yield. The Company also beat 2010 earnings expectations, reigning in $2.60 per share compared with $2.44 in analyst estimates. The Company invests primarily in mortgage pass-through certificates, collateralized mortgage obligations and other mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans, and certificates guaranteed by Ginnie Mae, Freddie Mac or Fannie Mae.
AstraZeneca PLC (AZN): This pharma giant is particularly immune to commodity inflation. Margins remained intact during high inflation quarters dating back to 1994. This $68 billion company trades at 47.64 and yields 5.22%.
Verizon (VZ): Verizon is a great business that generates a ton of cash; cash that it uses to pay a hefty 5.41% dividend yield and quickly pay off the debt used to fund the Alltel acquisition. This market leader (the company serves around 94 million subscribers or approximately 25% of the US population) already has an extremely loyal consumer base, and with Apple (AAPL) iPhone pre-orders doing gangbusters thus far, we think those relationships will only grow stronger.
Lockheed Martin Corporation (LMT): This major player in defense relies on intellectual property and its capable personnel to drive earnings, insulating it from increases in input costs. Lockheed has maintained margins through inflationary periods dating back to 1977. Yield is 3.54%.
Bristol Myers Squibb (BMY): This other pharmaceutical behemoth demonstrates resilience in its margins through inflationary quarters dating back to 1976. Shares of this $43.8 billion company yield 5.04%.
Altria Group (MO): This $50 billion enterprise sells one of the most price-inelastic products on the market. Cigarette input costs are a fraction of cost of goods sold for this company. Shares trade below $25.02 apiece and yield 5.96%.
Deutsche Telekom AG ADR (OTC:DTEGY): Another telecom name on the list, DT is Germany’s incumbent telephone provider with operations throughout Europe and the United States (T-Mobile). The company's fixed-line networks serve 37.2 million voice lines and 15.9 million Internet access lines. And the company’s wireless business has 131.1 million customers. But what drew our attention to this name was the company’s 7.58% dividend yield, and DT’s joint venture with France Telecom (FTE) (one of our dividend “kings”) in the U.K, which should help margins in a difficult country.
Merck & Co., Inc. (MRK): Merck was the third most resilient, measured by average reduction in margins in inflationary quarters dating back to 1971. Shares in this $101 billion company trade at 32.81 and yield 4.64%.
Kimberly-Clark Corporation (KMB): This maker of tissue and personal care products has expanded into healthcare over the years. The company has been able to drive earnings growth and maintain margins in inflationary quarters dating back to 1986. Shares of KMB trade for 64.41 and yield 4.06%.
Sysco Corporation (SYY): The global marketer and distributor of food service products wrings every penny out of its unmatched distribution and automation network to pick up transportation and input cost efficiencies. The company has successfully navigated inflationary quarters dating back to 1987. Shares trade at 27.69 and yield 3.58%.
H.J. Heinz Company (HNZ): This consumables company relies heavily on its brand-name to outdistance peers in the generic products categories in which it competes. Heinz has successfully driven earnings growth and maintained margins during quarterly bouts of inflation dating back to 1985. Shares in this $15 billion company trade for 49.97 apiece and yield 3.68%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.