Many investors are still concerned about getting back into the equity market due to stagnating equity market prices and the potential for a "lost decade" for the U.S. economy. Investors have already experienced their own lost decade in U.S. equities. While the 2000s ended with the bursting of the tech bubble and an overbought stock market, the last 10 years of no price appreciation helped valuation.
Earnings and dividends of large-capitalization companies have grown over the last decade, creating opportunity for value investors. With the 10-year U.S. treasury below 2.0%, equity market investors can find yields in high-quality large-capitalization companies at relatively modest valuations.
BlackRock, Inc. (BLK) - financial
Dividend Yield: 3.1%
EBITDA Margins: 40%
Price to Earnings: 14.1x
Market Capitalization: $32.1 billion
Thesis: BLK is the world's largest asset manager with more than $3.0 trillion under management. The company has a strong foothold in the institutional market.
NYSE Euronext, Inc. (NYX) - exchange
Dividend Yield: 4.4%
EBITDA Margins: 29%
Price to Earnings: 11.1x
Market Capitalization: $7.1 billion
Thesis: NYX will benefit from increasing regulations of OTC derivatives. The company's modest leverage and attractive dividend yield make it an attractive candidate for investors. The company's payout ratio is less than 50%.
Vodafone Group Plc (VOD) - wireless
Dividend Yield: 5.0%
EBITDA Margins: 31%
Price to Earnings: 13.1x
Market Capitalization: $90.0 billion
Thesis: VOD operates a globally diverse business with strong free cash flow dynamics at attractive margins.
AT&T Inc. (T) - telecom
Dividend Yield: 5.9%
EBITDA Margins: 31%
Price to Earnings: 15.2x
Market Capitalization: $178.8 billion
Thesis: The company operates an entrenched business model with millions of residential and commercial (business) customers. Its strong dividend and low leverage make T a strong pick.
Duke Energy Corporation (DUK) - utilities
Dividend Yield: 4.6%
EBITDA Margins: 34%
Price to Earnings: 15.6x
Market Capitalization: $28.6 billion
Thesis: The company operates as a regulated utility providing a stable source of earnings. The company has pricing power and its rate growth should provide earnings growth.
Altria Group, Inc. (MO) - tobacco
Dividend Yield: 5.5%
EBITDA Margins: 41%
Price to Earnings: 17.7x
Market Capitalization: $62.0 billion
Thesis: MO is a cash cow that provides investors a strong dividend yield in a low growth, yet stable market. MO is a market leader in the U.S. tobacco market with nearly 50% market share.
American Electric Power Company (AEP) - utilities
Dividend Yield: 4.6%
EBITDA Margins: 32%
Price to Earnings: 12.9x
Market Capitalization: $19.9 billion
Thesis: Similar to DUK, AEP is a utility with strong cash flow. The company operates a diverse model limiting risks to any one state.
Disclosure: I am long MO.
