While the stock market looks set to recover much of what was lost in May, much of the reason has to do with speculation over central bank intervention rather than organic improvements in macroeconomic data. While the United States is still stumbling along, many of Europe's countries remain stagnant or worse.
China is not showing any signs of improvement either, and it looks like its best years have already passed. While it's still growing, there's a lot of evidence suggesting that we've overshot expectations. This is why commodities and commodity stocks have been particularly weak this year.
Below are three conglomerate stocks that could be used for compounding over time with a DRIP portfolio. While they all most certainly have exposure to the general world economy due to their size and scope, these three have not cut their dividends since the financial crisis and offer both diversification and yield.
1.) General Electric (GE)
General Electric is a conglomerate company that sells a huge variety of industrial, medical, appliance and other products on top of its 49% stake in NBC. The company also operates a financial branch known as GE Capital, which is a leading provider of consumer and commercial loans. I want to note that GE Capital has been unfairly associated with the TARP bailouts of the recent financial crisis, as explained in this article.
GE is one of the companies here that had to cut its dividend due to the financial crisis, but this is understandable due to the losses suffered by GE Capital. GE Capital, the financial services arm of the company, brings about one-third of the company's revenue.
In Q1 2012, GE Capital is the only division of the company that experienced revenue declines relative to 2011, which implies that it's dragging down the company to some extent. While the recovery of the credit market is still in question, it's unlikely that weakness in GE Capital would cause problems substantial enough to induce a dividend cut. Shares of GE yield about 3.4%, which is due for growth if history is any indicator.
2.) 3M (MMM)
3M is another conglomerate company that sells generic products in everything from healthcare to security products. The sheer diversity of the company's operations is attractive for defensive investors, since it reduces the stock's risk to weakness in a single industry.
The stock is the very definition of reliable too, especially in terms of dividends, which have been faithfully increased for 54 years (amazing considering all the things we've seen). This is bolstered by a steady multi-year uptrend in the company's total revenue, and a strong balance sheet. The stock yields 2.7%, which is very fair given its safety profile.
3.) Siemens (SI)
The German version of GE, Siemens, similarly operates in energy, healthcare, industrial and infrastructure markets but lacks the presence in the financial industry. This can be considered a good thing by those who are feeling pessimistic about the future of credit markets.
When looking at Siemens as a dividend investor, an immediate problem that arises is the fact that the company uses euros. This also means it has more direct exposure to the eurozone's economy than its American counterparts. Still, these factors have already been largely accounted for. In addition, the euro-denominated dividend payouts have been steady and now yield 3€ per share, which currently equates to ~4.5%
A balanced stake in these three companies would yield about 3.5% annually, which outperforms fixed-income and offers its own inflation protection through floating stock prices. You can see more about this idea in this article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
