Stocks With Good Dividends
The Dynamic Wealth Report
December 19, 2008
What I'm Buying Now
This week the Federal Reserve made history. They lowered
interest rates to levels never before seen. Right now the target Fed
Funds Rate is a range of 0.0% to 0.25%. It was an amazing announcement. In addition to lowering the rates, the Fed also announced plans to
actively buy agency debt and other mortgage backed securities.
In my mind it wasn’t the rate cut that had the biggest impact.
The news of the Fed actively buying debt caused long term interest rates
to fall. Short term government debt now has a yield of close to 0%. The
prospect of low mortgage rates caused the market to rally big time. I
guess the thought of a real estate feeding frenzy (due to low rates) is
a positive thing these days.
Now, the market rallied big on the news. It might be a bear market
rally… or it might not. Only time will tell.
Here’s the thing… despite the crazy markets I’ve been selectively buying
good quality stocks. I thought you’d be interested in what I’m buying.
My focus right now is on long term investments. Investments I could hold
for 10, 20, or 30 years. I know that seems like a long time (and it is).
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
I started focusing on solid well known companies that were
profitable and paying dividends. I figure if I’m going to hold something
that long, I might as well get paid to do it… right? The easiest way to
get paid is through dividends.
But dividend yields can be a big trap. The yields on some stocks are
huge. I found some dividend yields of more than 25%. But they’re big for
a reason, many investors expect these companies to cut their dividends
at some point in the future.
It's a risk I’m willing to take. But one I hope to mitigate by investing
in well known, well run companies.
Was my timing perfect? Probably not. I started making a few purchases in
late October. You can imagine the feeling I had when the market kept
dropping into November. Now, we’re back up above where I made my
purchases… and I think heading much higher.
Around that time, I bought a handful of different stocks. Instead of
just listing all of them, I thought I’d pick one and explain why I liked
it.
So here it goes.
One of the first companies I picked was Home Depot (HD). Yes the same
big box retail store sitting in every city in America. The same place
you can buy a Christmas tree, a hand saw, a box of wood screws, and all
the lumber you can haul.
I know what you’re thinking…. Is he crazy? With the horrible housing
market why buy this now?
Everyone knows the housing market’s in the dumps. Home values are down.
Foreclosures are up. And with the soft economy, people don’t have the
money to fix up their homes right now. I get it.
Here’s the thing. It won’t stay like this forever. Not every home is
going to crumble into dust. At some point in the next few years the
housing market will stabilize. Then it will start to slowly grow. All
those little repair jobs around the house will start getting done.
Roofs will get fixed, drips will get repaired, new carpet will be
installed, and plumbing fixtures will be updated. Homes with deferred
maintenance will start to receive the care and attention they need.
It won’t happen right away, but when it does, Home Depot will be there
to sell homeowners everything they need.
Remember, Home Depot isn’t some fly by night start-up.
They’re the largest chain of home improvement stores in the nation. They
have stores in all 50 states and parts of Canada, Mexico, and China. Just how big is
Home Depot?
For the 9 months ended October 2008 they did more than $56.6 billion in
sales. They generated more than $4.0 billion in operating income, and
net earnings of more than $2.3 billion. That’s more than $1.37 per share
in earnings.
Not bad numbers for such a horrible economic environment.
Now, analysts on the street are cutting back earnings estimates on the
company. As a matter of fact, the company has seen a number of revisions
downward in their growth rate… but what do you expect when the entire
country is in a recession.
Amazingly of the 19 analysts who cover the stock, only 6 rate it a buy.
Great news. As the company performs, these analysts will no doubt
increase their rating. This will drive institutional investors back into
the stock, causing the price to rise.
Now, I’m not expecting the stock to rocket higher any time soon. I think
it will be a gradual buildup over time. I’ve got no problem with slow
and steady, because of the dividend.
Recently the Board of Directors announced a dividend of $0.225 per
share.
Annualized, the dividend works out to $0.90 per share. Right now that
represents a yield of 3.6%. Much better than the current 0% yield you
can get on short term government securities.
But that’s not all. Over the last 5 years the company’s average yield
was 1.3%. If things were to return to normal (the 5 year average) the
value of this stock could jump by 270%.
Plus we get the juicy dividend!
I nibbled a little when the stock was under $20 a share. Today it’s up
to just over $24. That’s a nice 20% gain in the worst market environment
in decades. I’m not going to sell and take a quick gain. Nope, I’m looking
at this for the long term… and for that dividend.
I think we have a long way still to go on this stock. If I’m right, now
might be the buying opportunity of the decade for Home Depot. Think
about it for your own portfolio.
• Cheesecake Factory (CAKE) was upgraded to a “Buy” at Sun Trust.
The restaurant received an $11 price target in one of the worst market
environments ever.
• Las Vegas Sands (LVS) was downgraded by Susquehanna to “Neutral”. This
was an analyst who missed the boat… the stocks down some 93% this year
already.
• Wedbush Morgan started research coverage yesterday on American Eagle
(AEO) with a “HOLD” rating. The teen clothing retailer isn’t expected to
do well this holiday season.
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map