Here's to Dividends
There's nothing like cold, hard cash to ease investing anxiety. And what could be better than companies that consistently raise dividends? We found six that meet all our criteria.
By Steven Goldberg, Contributing Columnist
From Kiplinger's Personal Finance magazine, March 2005
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Beer's Bluest Chip
Sober investors would pay a premium for Anheuser-Busch (BUD). The company controls 50% of the U.S. beer business, which gives it economies of scale that competitors can't touch. Busch can and does outspend rivals on advertising and distribution, yet still boasts higher profit margins. Its brands are so popular that Busch has continued to gain market share while raising prices seven consecutive years. Merrill Lynch analyst Christine Farkas credits Busch with "one of the strongest management teams among consumer companies."
The Busch story doesn't stop at the water's edge. China has replaced the U.S. as the world's largest beer market, and last year the company acquired Harbin Brewery, China's fourth-largest brewer. Busch also has a partnership with the biggest brewer, Tsingtao, and has built its own breweries in China as well. By volume, about 20% of Busch's sales are abroad, and foreign markets will drive future growth.
Not everything is rosy, though. Archrival Miller (owned by London-based SABMiller) has been making a comeback. Worse yet, some drinkers are switching from beer to wine and liquor. But Busch is battling back by increasing its marketing to bars and liquor stores and by rolling out new brands in eye-catching cans and bottles. The brewer's newest drink, B-to-the-E, is a beer that contains caffeine and ginseng and comes in ten-ounce red-and-black cans.
Busch's numbers are compelling. Analysts, on average, expect earnings to grow 10% annually over the next few years, according to Thomson First Call. The stock yields 2% and sells at 17 times the 2005 consensus earnings estimate of $2.94 per share. That's the same as the price-earnings ratio for the S&P 500. Notes Bill Nygren, manager of Oakmark Fund: "You don't have to pay a premium price for this premium company."
Gasoline on Sale
Something funny is happening in the oil patch. True, no one but Chicken Little expected crude oil to stay at $55 a barrel. But Wall Street analysts, and some of the major oil companies themselves, are building their computer models based on assumptions of $28- to $30-a-barrel oil. That compares with a mid-January price of $48. With developing economies, such as China's, gulping down oil by the tanker load and continuing unrest in the Middle East, Lewis Ropp, an analyst with Vanguard Windsor II fund, thinks prices are likely to be closer to $40 for years to come.
There's no better low-risk way to cash in on $40 crude than with the stock of ChevronTexaco (CVX). Its competitors -- ExxonMobil, BP and Total -- don't stand to benefit nearly as much from sustained high oil prices. That's because their businesses are more diversified. "ChevronTexaco is more leveraged to the price of oil," says A.G. Edwards analyst Bruce Lanni, who recommends the stock.
The 2001 Chevron-Texaco merger slowed the company for a while. But the company reined in costs, sold some less desirable oil properties and focused on its most promising sites. "They've had great success with the drill bit the last couple of years," says Ropp.
Yet Chevron is cheap -- 15% cheaper, Lanni estimates, than shares of Exxon and BP based on a price-earnings comparison, as well as other measures. Chevron yields 3.1% and sells at just 11 times estimated 2005 earnings of $4.72 per share. So even if oil prices dip, it's a relatively low-risk stock.