Picking a bottom in the market is never easy. Many times investors find themselves trying to “catch falling knives” as the saying goes. We have found that there is one way to not financially handicap one’s self by investing in turbulent times and that is simply by doing more of that which is working, and less of that which is not. It seems simple, yet many investors panic and sell their winners to continue to fund, or be able to afford to keep, their losing positions. Below are a few stocks that are at or near 52-week highs and providing a significant yield and thus cash flow. If these were in our portfolio, we would most certainly be holding these stocks and not selling them to hold onto the losers in our portfolio.
Kimberly-Clark Corp. (KMB)
Kimberly-Clark is a solid bet for investors. The stock currently yields 3.9% based upon its $2.80/share dividend. Currently trading at about $71/share, KMB shares are just off of their 52-week high of $71.78 (the 52-week low is $61/share) and have held in quite strongly as of late. The company is best known to consumers for their various brand names including Kleenex, Scott’s, Huggies, Pull-Ups, GoodNites, Kotex, Depend and Poise among others. KMB is a large, financially sound entity with over 50,000 employees and an operating record dating back to 1872.
McDonald’s Corp. (MCD)
McDonald’s is one of those great American growth stories where investors could have purchased the shares at almost any time over the past 40 years and made money. MCD has consistently rewarded investors and after a few missteps in the early 2000s, the company’s stock resumed its upward path. MCD has recently been raising its dividend, now currently $2.80/share (based off the past 12 months), which yields 3.2%. The company has positioned itself to be relevant for the next generation, as well as today, by offering a Dollar Menu, healthy choices, premium coffee and drinks and the burgers and fries that started it all. MCD shares are a bit off of their 52-week high of $91.22 as the stock currently trades at $87.20. With 32,943 restaurants worldwide, located in 117 countries, MCD offers investors exposure to both the US and international markets.
Bristol-Myers Squibb Co. (BMY)
BMY seems to have finally gotten its act together. Once the least favored of the Big Pharma stocks, the company has experienced somewhat of a renaissance in its shares, which trade at $32.33, just off of its 52-week high of $32.75. Although the shares have been rising, BMY still sports a healthy dividend yield of 4.1% (current rate is $1.32/share). According to analyst estimates, both sales and earnings should be down next year, but with nearly $7.7 billion in cash and a tad over $5.2 billion in debt, the company appears in solid financial condition. The payout ratio is at 67%, and is high by most measures, however this payout ratio is below some of its peers in the industry, notably Pfizer (PFE) and Eli Lilly (LLY).
Reynolds American (RAI)
RAI makes some of the best known cigarette brands not owned by Altria. The company has a dividend of $2.12/share and a yield of 5.4%. With its high yield and the uncertain economic times, the stock currently trades at $39.36, just off of the 52-week high of $39.87. Although the smoking population has been shrinking in developed markets for years, RAI and its competitors have found ways to raise prices and cut costs in order to continue to improve revenue and profits and keep the payouts flowing to shareholders. The snus product could prove to be a growth driver for years to come and open up new markets for the company. The company does have an 87% payout ratio but sales and profits are increasing, thus providing what we believe to be a healthy cushion for RAI shareholders.
Duke Energy (DUK)
Duke Energy is in the midst of purchasing Progress Energy, a purchase which it believes will result in considerable cost savings and economies of scale. The acquisition is still awaiting approval from the Feds, but in all likelihood will be approved. Currently DUK has a payout of $1.00/share and yields 5.0%. The shares have held in strongly throughout the economic concerns of late and the acquisition they are performing, which we believe highlights the underlying strength in its shares. Just below its 52-week high of $20.21, DUK trades at $19.79. The company has a payout ratio of 64%, which leaves plenty of room for the dividend and capital expenditures once the Progress Energy acquisition closes and the synergies are realized.
The Southern Company (SO)
SO is a utility company focused on the southeastern United States, and provides services mostly in Georgia, Alabama, Mississippi, and Florida. Other than power services, the company offers wireless and fiber-optic services. The Atlanta based company has a dividend of $1.89/share and provides a yield to investors of 4.5%, the current dividend rate has the company at a 79% payout ratio. Like the other companies we have highlighted, SO is also near a 52-week high with shares currently trading at $42.37, just off of the high at $43.09.
With yields at historic lows for government paper and other debt instruments, investors can lock in healthy yields via dividends from the above mentioned companies. Although riskier than sitting in cash, this option enables one to realize capital gains (and possibly capital losses) and get a revenue stream from the dividends. With the dividends yielding a few times more than most debt instruments and many times more what one could realize by parking cash in a savings instrument we think that these well performing yielders are the way to go. Remember, do more of that which is working and less of that which is not.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.