As an individual investor trying to navigate an increasingly volatile market, I tend to naturally gravitate towards accumulating strong defensive companies with attractive dividends and low valuations.
When I buy a share of an individual company I see it as purchasing part ownership, which means I am in it for the long haul. I am not the speculator who Maria Bartiromo said went to cash today on a poor consumer sentiment number.
So as a true committed dividend growth investor still in the accumulation phase, I use these uncertain times of today to buy the future high yielding bargains of tomorrow.
I want to pick winners at this point in time. I do not want to chase unsustainable high yields. Look at Frontier Communications (NYSE:FTR) for a recent example of the dividend trap.
Walt Disney Co.
The Walt Disney Co. is firing on all cylinders and ready to ride the Marvel gravy train to infinity and beyond. Disney's quarterly earnings beat Wall Street expectations as profit rose 21% despite "John Carter." Strong attendance at theme parks and higher advertising revenue at cable networks, including ESPN, also helped drive growth.
Audiences around the globe continue to provide rave reviews for "The Avengers" propelling it to new box office records. The most compelling fact is this quarterly results just reported do not include the staggering profits from 'The Avengers." Movie merchandise is also flying off the shelves as the company is working to meet the increasing demand.
Disney is already anticipating at least three future sequels as well as additional summer blockbusters like "The Amazing Spider-man." Look for Disney to ride this positive sentiment wave into a bullish price move bucking the larger downward trend through the summer and beyond.
Also look for this Marvel infusion to continue to produce from their multi-platform sales including consumer products, theme products and cable television divisions from the new franchise. Expect even more pop as the hits keep coming.
It is a bit of a dividend pariah with its current yield a measly 1.33% annually. A bright spot is the yield was increased a staggering 50% last year. Although at first glance Disney appears a defensive play, I feel the potential for future growth is its most compelling asset.
Apple is the newest member of this dividend club with an annual yield of around 2%. The problem Apple seems to face is persistent negative sentiment rather than any mathematical anomaly I can locate.
People remain skeptical about its continued ability to sustain such remarkable growth and continue to blow out earnings each quarter with such gusto. I think we have we set the bar too high for Apple.
The truth is Apple is not going anywhere soon. They are not going to lose market share as their products, right now, are truly superior and flawlessly integrateable. Their growth potential overseas is also a compelling reason to be long.
Tune out the negative sentiment and be an investor in Apple, not a speculator.
I continue to be cautiously bullish on Verizon Communications because of an aggressive stance to become the industry leader. They are attempting to do this by acquiring more market share, more broadband spectrum, and more distributors and business partners.
Verizon offers the highest dividend of this group at nearly 5%. The growth of the mobile market is undeniable. The risk profile of Verizon has recently increased due to this aggressive behavior, which is a reason to have some slight concern.
Verizon has recently signed an agreement with cable companies Comcast (NASDAQ:CMCSA), Time Warner Cable (TWC), Bright House, and Cox.
An interesting tidbit, though, is the FCC has not yet allowed the $3.6 billion dollar deal to go through. This also allows the cable companies to market Verizon products and vice versa.
Undaunted by the potential blockage, Comcast and Verizon recently announced their plan to offer bundled services from each vendor to six new markets, in addition to the three markets in which the pair launched the service earlier in the year.
Verizon has also sold bundled services with Time Warner Cable, but has not done so with Bright House or Cox yet.
Indeed, smaller carrier T-Mobile has already filed a complaint against Verizon, claiming that much of the spectrum it already has goes unused.
As an investor, I am salivating to pickup this company at lower prices mainly because I like its future growth potential. Teva has grown EPS by nearly 37% over the last 5 years. Quarterly sales are up nearly 30%. The price-to-earnings ratio of Teva is just above 14, making it the lowest of the five. It is also projected to drop significantly lower over the coming year.
The dividend is an added bonus. Teva pays an annual dividend of around 2.12%. It does, however, have a very stable and reliable payout ratio of only 31%. This is also the lowest of the five.
This is significant for several reasons. It shows there is cash available to raise the dividend or implement a stock buyback program. It also indicates company management that is fiscally prudent and protective of the rights of individual shareholders.
Teva is the world's largest generic drug manufacturer, and is likely to gain as the global population gets older and spends more money on health care. Its current sagging price should be viewed as a opportunity to accumulate shares at a discount.
This defensive stock has just been smoking hot. I have been waiting patiently for some kind of elusive pullback but it has been little and far between. Since early October the stock has been on a relentless push upward rising nearly 50%.
Even in a pullback I think PM is positioned well. It has a current market cap of around 153 billion and growing and a price-to-earnings ratio of 18. It has earnings per share of $4.85. It offers a dividend of $3.08, which equates to roughly 3.5% annually.
This makes the payout ratio an acceptable 63%. Late last year it also increased the payout an incredible 20%. Management is intently focused on two things that jive with my investing philosophy.
- Increasing annual dividends
- Creating shareholder value
An important yet often overlooked cliche in sports is the old adage "the best offense is a great defense." I believe this idea can be translated to your portfolio, especially when the going gets tough or volatility enters the arena.
If I were the coach of a hypothetical investment team, I would preach the importance of the three D's. They stand for defensive, diversified, and dividend growth oriented.
Sometimes, you have to hold your nose and buy the weakness created by a meddling, bumbling, anti-business Washington. I believe a defensive, diversified, dividend growth oriented portfolio is the best way to play the turbulent summers ahead.