With recent market volatility we have received a lot of questions of where to put money for income investing. Making a few assumptions, that the U.S. figures out the debt ceiling issue before it explodes in the politicians’ faces and that Europe can keep Greece and the other PIIGS from the world’s financial news front pages, we feel comfortable putting this money to work in large-cap, dividend paying companies.
We like the multinationals which have nice dividend and favorable growth prospects in emerging markets. Here are a few of the stocks we like:
Whirlpool Corporation (WHR)
The iconic appliance manufacturer under such brand names as Whirlpool, Maytag, KitchenAid, Amana and many others trades at an attractive price-to-earnings multiple of approximately 9.5 at the current price of $75/share. The company pays a healthy dividend of $2.00/share which provides investors with a current yield of about 2.6%. WHR has been hit in recent years with the housing bust in the U.S., its largest market, but rose from the lows of the financial crisis to a high of over $110. Whirlpool has premium brands that sell well not only in the U.S. but around the world. Further the company has brands which compete quite well in emerging markets, providing the company access to tomorrow’s giant markets.
The drawbacks on WHR are the pension fund liabilities on the balance sheet, which the company should have no problem funding moving forward and increasing commodity prices which hurts margins, especially on the lower margin brands.
Caterpillar, Inc. (CAT)
Caterpillar is best known for its yellow bulldozers and backhoe loaders. However when its merger with Bucyrus closes, CAT will be a diversified heavy equipment manufacturer providing everything from construction equipment, mining equipment and even a new line of work trucks. In other words, CAT will be able to sell nearly every piece of machinery that a construction or mining company would need to get a project running. The stock currently trades for $99.88/share and with the $1.76 annual dividend provides a decent 1.7% yield for investors. If one is a believer in continued world growth and strong commodity pricing, then CAT is an excellent play.
Headwinds CAT could face include slower world growth, softness in commodities, and a further drop in residential or commercial construction.
Pepsico, Inc. (PEP)
The number two player behind Coca Cola (KO), Pepsi handily beats KO in THE other segments (snacks and performance drinks). The snacks business is an industry leader and should shelter Pepsi from some of the pain going forward if the North American soft drink market continues to shrink by volume. The Gatorade segment is another dominate brand, however one can only hope that the company thinks before launching another marketing strategy such as the “G” labeling which left many scratching their heads and unimpressed. Pepsi is building up overseas, an area once reserved for Coca Cola, and making inroads in various places. We are most excited about India, however, as the rest of the world begins to get access TO Pepsi’s brands such as Mountain Dew, Wild Cherry Pepsi, or other geography specific flavors we suspect that just like Americans they will like PEP’s drinks over KO’s (although the iconic Classic Coke still is the best seller along with its Diet version).
With shares trading for $68.93 each and an annual dividend of 2.06/share, PEP sports a healthy 3% yield while trading at a P/E of 18.
Vodafone Group, PLC (VOD)
The global mobile telecom operator has developed dominant positions in both mature and emerging markets, which recently has enabled the company to begin to pick areas to focus on. The company has strong cash flow generation from mature markets which it is then able to redeploy to other parts of the world as well as return to shareholders. VOD is another growth and income stock which at its current price of about $27 (in trading on the NYSE) provides investors with a 7.1% yield ($1.92 annual dividend per share in the U.S.) and a P/E of just under 11.
The company has one looming large decision to make going forward and that is in regards to its minority, albeit very large, position in Verizon Wireless. The position is worth billions and could provide VOD with the money necessary to make acquisitions in new markets or further deployment in current markets. VOD provides investors with exposure to many emerging markets which will drive growth while the mature markets will continue to help fund the healthy dividend.
Boeing Company (BA)
Boeing is the leading maker of commercial airplanes with a large defense subsidiary. The company is embarking on what we think is a multi-year development cycle which will make them the maker of the most advanced and fuel efficient commercial aircraft in the world. BA’s Dreamliner will begin to come of the production line in the near future and provide upside to BA shares. At a current price of about $74 per share, BA shares yield 2.2% and trade at a P/E of about 16.5.
As the developing world begins to take to the air for travel, more planes will be needed and BA has both the name and the goods to deliver this capability to satisfy the ever growing demand. Asia will be a huge market, and thousands of planes will be needed to fulfill the future demand, so as full as the current pipeline looks, it could certainly bloat up moving forward.
The five companies discussed above provide investors with respectable dividend yields and potential significant growth going forward. With these equity positions investors can afford to be buy and hold investors while sitting back and collecting dividends during any rough patches which may arise.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.