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Balance High Beta Holdings with Solid Income Plays

Coffee is a way of stealing time that should by rights belong to your older self.” ― Terry Pratchett, Thud!

Tim Plaehn is an expert on income investing and a friend and colleague at Investors Alley, he is also a contributor on SeekingAlpha. Tim runs the Dividend Hunter newsletter which offers a solid and diverse selection of attractive high yield plays. The service now has over 7,500 active subscribers! You can get in on this action for the rock bottom price of $49 (It usually is $99) for the first year, just CLICK HERE. IF YOU ARE LOOKING FOR SOLID INCOME PLAYS, this is a great bargain.

No matter what historians claimed, BC really stood for "Before Coffee.” ― Cherise Sinclair, Master of the Mountain

Tim's Corner, By Tim Plaehn:

There are a handful of basic, popular strategies for investing in the stock market. Growth stock investing gets the headlines. This strategy involves buying stocks that are going up in price, with the assumption that the share prices will continue to rise.

Investors like the idea of maybe buying the next Amazon (AMZN) or Apple (AAPL). The challenge of investing for growth is trying to decide when to sell and when share prices drop trying to determine if the decline is permanent or temporary.

Value stock investing involves buying into companies where the share price has been beaten down by the market. These are companies where the investing public does not believe in future positive financial results. These are stocks that are hated.

The value investor looks for reasons why this type of company could turn around its fortunes and have a share price that moves significantly higher.

Value stock investors must have tremendous patience and be willing to stick to their investment thesis, even if stock prices decline further. Warren Buffet is the most famous value investors.

Apple was a value stock when Steve Jobs returned to run the company in 1996. It took close to a decade before he turned the company into the growth stock everyone knows today.

Dividend growth focused stock market investing is the strategy that you will find most wealthy investors use to sustain and grow that wealth. The strategy involves investing blue chip or near blue chip stocks that pay regular and growing dividends.

This strategy will preserve wealth and throw off a moderate, but growing amount of income. The dividend increases propel share price gains, leading to attractive total returns over time with lower volatility. This is the strategy most often employed by independent money managers.

Today I suggest to you a strategy that combines the last two strategies to give you quicker returns than the typical value investor realizes and greater returns than are typically generated by a blue-chip dividend growth focused strategy.

From the dividend growth side, we start with the list of Dividend Aristocrats. These are companies that have increased dividend rates for at least 25 straight years. The bluest of the blue chip stocks. The popularity of this group is shown by the typical dividend yields.

Currently the SEC yield of the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is 2.24%. Add in the fund’s 0.35% expense ratio and you have a group of stocks that yield on average 2.6%.

To dig some value out of the Dividend Aristocrats I suggest a strategy of buying the highest yield stocks from the list. The higher yields show stocks that have fallen out of favor with investors. However, with the Aristocrats tag, it is unlikely one of the companies will elect to break its record of dividend growth.

These are some of the largest, most stable businesses in America and at some point, the shares will move back into favor. While being the patient value investor with these stocks you earn an attractive and growing dividend yield.

Here are the five current highest yield stocks on the S&P 500 Dividend Aristocrats list:

AT&T (T) is a $235 billion market cap telecommunications services giant. The company provides wired and wireless telecommunications services to individual and businesses.

It also owns WarnerMedia, an owner of entertainment assets such as HBO, CNN, Warner Bros. and Turner Sports.

AT&T has increased its dividend for 35 consecutive years. The dividend growth rate has been about 2% per year.

The stock currently yields 6.3%. A boost in the dividend growth would be the catalyst for a higher share price.

AbbVie Inc. (ABBV) is a $115 billion market cap pharmaceutical company. It has developed and markets more than 30 different products. The company’s arthritis drug Humira has been the best selling drug in history.

The ABBV share price is off almost 40% from its highs on the fears concerning Humira coming off patent in Europe last year and in the U.S. in 2023. The value play on AbbVie is that the company will release new drugs to offset the revenue losses from Humira and allow the company to continue to grow revenue and profits.

AbbVie was spun-off by Abbott Labs in 2013, so is not technically a Dividend Aristocrat, but the keeper of the list includes it, so I will also.

The company has grown its dividend by 21% compounded over the last three years.

ABBV yields 5.5%.

Exxon Mobil Corp. (XOM) is a $315 billion market value, diversified energy producer. The company explores for and produces crude oil and natural gas on six contents. It produces refined fuel and chemical products and markets them worldwide.

Energy sector profits are cyclical, and Exxon Mobil is amid a down cycle that started in 2015. The value investing theme here is that the world will continue to grow its consumption of carbon based energy.

The company has grown its dividend for 37 years, with a 5.6% five year growth rate, through the current downturn.

XOM currently yields 4.6%.

Cardinal Health, Inc. (CAH) is a $13 billion market cap provider of healthcare services and products. The company delivers its products and services to hospitals and health systems, pharmacies, clinical laboratories, ambulatory surgery centers, and physician offices worldwide.

Healthcare related stocks are out of favor on the fears of a broader government takeover of the healthcare sector. The value play is that government run healthcare will not become the reality in the U.S. Cardinal Health has increased its dividend by 9.85% per year over the last five years.

Current yield is 4.3%.

Leggett & Platt, Inc. (LEG) is a $5 billion market value manufacturing company. The company produces the materials, such as foam and springs, used to manufacture furniture. It also manufactures its own lines of furniture.

Leggett & Platt’s business follows the economic cycle, so the stock is down on fears of a coming economic recession. The value play is that a recession is still years off, or the next one will not be severe.

The dividend on this stock has increased for 48 consecutive years, with a 5% compound growth rate over the last five years.

Shares of LEG yield 4.25%.

I don't really like coffee, she said, but I don't really like it when my head hits my desk when I fall asleep either. -Brian Andreas
Tim Plaehn of The Dividend Hunter has just published a new free report that reveals the name of a safe monthly dividend stock that you can hold forever and leave for your grandchildren. The company pays a dividend EVERY month and a bonus dividend twice a year – June and December. You need to own this stock by July 16 to get the next monthly payout. The new research can be downloaded free HERE.

Thank You & Happy Hunting,

Bret Jensen

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