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All Contents © 2017The Kiplinger Washington Editors
By Jeff Reeves
| October 2016
Finding the best stocks to buy is never easy, but investors have had a particularly difficult time finding trades they can have confidence in during the presidential contest of 2016. The stark differences between the economic plans of Hillary Clinton and Donald Trump mean it’s hard to know for certain what the next four years will hold.
On top of that, the market has been stuck in a rut since July. And the non-action by the Federal Reserve at a highly anticipated September meeting has many investors on pins and needles about what comes next.
It’s safe to say that as 2016 draws to a close, then, that many folks are looking for stability and protection instead of high-growth opportunities to take to the bank. And if this describes you, you’re probably looking for three things in your stocks:
I’ve compiled a list of 9 picks that meet all three of these measures. Every one of them would be a great fit for investors looking to weather the volatility in the coming months.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Market cap: $24 billion
Dividend yield: 4.4%
Ventas, Inc. is a REIT that is capitalizing on the graying of America, and is one of the largest operators of senior living facilities in the U.S. VTR owns approximately 1,300 properties, ranging from skilled nursing facilities to specialty hospitals.
Almost half of Ventas properties operate under the lucrative “triple net lease” model where tenants are responsible for paying real estate taxes, building insurance and maintenance. That’s a streamlined and cost-effective deal for the operator, and VTR investors have been paid back nicely via a 4.4% dividend fueled by these properties.
As baby boomers age and rely on facilities from companies like Ventas to keep them healthy and active, there will only be increased demand for these kind of services in the coming years. That demographic shift makes VTR all but a sure thing in an otherwise uncertain time.
Sector: Consumer staples
Market cap: $20 billion
Dividend yield: 2.6%
Chocolate king Hershey Co is down about 15% from a 52-week high a few months ago, but long-term investors shouldn’t read too much into the flop.
The decline was actually part of a head-fake when HSY ran up on hopes of a merger with Mondelez International Inc. (MDLZ), and when the deal fell through the stock fell right back to where it was before rumors swirled — and in fact, Hershey is pretty much flat on the year as a result.
But while the merger news is disappointing, it’s not the end of the world. Hershey is hugely popular and the company makes up approximately 45% of the chocolate market and has one of the most powerful brands on the planet.
A 2.6% dividend is sweet, too, and “sin stocks” like this candy maker have historically performed well in recessions where consumers splurge on simple pleasures like junk food when hard times make them forgo big vacations or other spending.
Market cap: $633 billion
Dividend yield: 2%
With a market cap of more than $600 billion, Apple Inc. is one of the largest corporations on the planet. And with about $220 billion in cash and short-term investments on the books, it’s also got a huge rainy day fund to fall back on.
While Apple isn’t the growth stock it once was, it is still at the center of mobile communications and a dominant brand in consumer technology.
Considering its top competitor Samsung Electronics (SSNLF) has just shot itself in the foot with a major design flaw that literally causes its phones to go up in smoke, there’s a great opportunity for AAPL stock to claw some market share in Q4 and into 2016.
Market cap: $257 billion
Dividend yield: 3.2%
General Electric Company is a widely held stock that is a staple in many portfolios, but many income investors remain leery of the conglomerate after its deep dividend cut during the financial crisis.
But after GE divested the final parts of its lending outfit to Wells Fargo & Co. (WFC) a little more than a year ago, investors can have confidence that the new GE is a stable and reliable income play.
GE’s large and diversified operations span power generation, medical imaging and aircraft engines just to name a few, and this wide revenue base will support strong cash flow no matter what is happening to the broader economy.
With a 3% dividend, you will have lots of incentive to buy and hold GE no matter what comes.
Market cap: $240 billion
Dividend yield: 2.9%
It’s rough out there for many financial stocks lately, given the lack of confidence in the financial sector since the Great Recession and the increased scrutiny by regulators and politicians. But JPMorgan Chase & Co. continues to stand strong amid the headwinds, posting a string of better-than-expected earnings lately.
That’s admittedly thanks to cost-cutting measures, but it also helps that JPM remains the largest bank in America with over $2.4 trillion in total assets. And while not exactly known to be squeaky clean, recent trouble at Wells Fargo makes JPM look much more principled by comparison and could help both investor sentiment and consumer perceptions of the bank.
JPMorgan is one of the best run operations out there, weathering the financial crisis better than its peers and quickly ramping back its dividend to an attractive 2.9% yield at current pricing even though that payout remains just about one third of total earnings.
Sector: Business services
Market cap: $193 billion
Dividend yield: 0.7%
Mobile payments remain a massive growth industry. But regardless of who wins the battle for market share, one thing is clear: the world’s largest payment processor, Visa Inc., will find itself plenty of new revenue as it takes a cut of those cashless transactions.
The growth story is already very clear in the top-line performance of V stock over the past five years, where revenue has grown at a 20% annual rate. Earnings continue to soar as well, with per-share earnings set to surge four fold in five years from 79 cents in 2012 to a projected $3.30 in fiscal 2017.
The dividend at Visa isn’t as robust as the other companies on this list, at less than 1% in yield. This growth story is unmatched, however, and the consumer and tech trends behind V stock will keep your portfolio moving in the right direction no matter what the market throws your way.
Market cap: $147 billion
Dividend yield: 3.5%
Cisco Systems, Inc. is a force in enterprise technology, but it also is increasingly becoming a force for dividend portfolios. Its payout has surged more than fourfold in five years, from just 6 cents a quarter in 2011 to 26 cents currently. And even now, the payouts are highly sustainable at less than half next year’s earnings.
Some knock Cisco for being “dead money” back in the early 2000s, but shares have more than doubled since their 2012 lows. And looking forward, Cisco continues to reshape its company via acquisitions including six deals in 2016 across everything from semiconductor designers to data center managers to cloud computing companies.
It also is thinking seriously about efficiency even as it grows, including the painful decision to lay off 20% of its workforce this summer.
Market cap: $235 billion
Dividend yield: 3%
Many consumer staples stocks have run up in 2016 as investors have flocked to safe haven investments. But Procter & Gamble Co stands above some of the other names out there for a few reasons.
For starters, despite strong stock performance, it still yields a bit over 3%. Also, the payout ratio is about two-thirds of next year’s earnings, so the dividend is sustainable and there’s potential for future increases.
And, of course, let’s not forget that P&G boasts some of the most recognizable brands lines in world, including Dawn dish soap, Bounty paper towels and Olay beauty products.
These items are regulars at the checkout aisle regardless of good times or tough times, and that ensures P&G will stay strong no matter what.
Market cap: $322 billion
Dividend yield: 2.7%
Johnson & Johnson is the perfect example of a bedrock stock. With powerful consumer brands like Tylenol and Band-Aid, this company is a mainstay of American households. And with these staples alongside higher-margin medical products that will remain recession-proof, JNJ is as stable as they come.
Americans will cut back on a lot in hard times, but they will never cut back on the items that reduce their pain and improve their quality of life. Can you imagine someone with arthritis forgoing a pain reducer in favor of a trip to the beach or a pricey restaurant? This factor alongside the valuable product line of JNJ makes this pick a slam dunk for anyone concerned about hard times ahead.
Furthermore, the dividends at Johnson & Johnson are better than Treasuries and almost as reliable. Distributions have been paid since World War II, and JNJ stock remains one of just two public companies with AAA-rated debt (if you’re curious, Microsoft (MSFT) is the other).
This article is from Jeff Reeves of InvestorPlace. As of this writing, he held none of the aforementioned securities.
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