Wednesday, January 18, 2012

The Grouch's Dividend Picks for 2012

I'm an invest-for-the-long-term kinda guy so I'm looking for stocks that I think have good long-term prospects, a solid business in a stable industry that won't become obsolete next year and where there are barriers to entry. I don't want to invest in industries that every kid who graduates from MIT is dreaming of revolutionizing. This naturally leads me away from technology, though I am a technologist by profession. I also tend to be a bit of a contrarian and have a natural tendency to look for turn around plays.

My picks for 2012 are:

Brookfield Infrastructure Partners (BIP) yield 4.80% - what could be more boring than owning timberlands, electric transmissions lines, natural gas pipelines, port operations, toll roads, coal terminals, and railroad tracks all over the world? And profitable. With inflation based increases built into most of their contracts, these assets are poise to generate mucho deniro. This is also a potential play on cash-strapped governments in Europe and around the world selling off state-own assets cheap to pay their bills. As long as Brookfield is smart about financing, they will do very well.

BHP Billiton (BBL) yield 3.35% - the investment theme for BHP is the continued need of China for raw materials to fuel their economic growth as well as the natural gas revolution in America. BHP Billiton is one of the world's leading miners of aluminum, copper, lead, iron ore, manganese, energy coal, metallurgical coal, uranium, etc. Their acquisition of Petrohawk gives them a strong position in the North American Oil and Natural Gas business.

Conoco Phillips (COP) yield 3.70% - diversified oil and gas company that is slated to split into two companies in 2012 to unlock shareholder value. This is a bet that two companies are worth more than one and will pay higher total dividends to investors that keep both stocks.

Abbott Labs (ABT) yield 3.50% - diversified healthcare company that is slated to split into two companies in 2012. This is a bet that the split will unlock hidden value, result in an increased overall dividend and perhaps position the new companies to be acquired by larger players.

Cedar Realty Trust (CDR) yield 7.75% - Primarily a shopping center REIT that specializes in grocery store anchored properties. Turnaround play. Previous management constantly diworsified the portfolio and ran up debt. New management has been brought in and put together a plan to rationalize the portfolio, divest non-core assets, reduce debt and return the company to steady FFO growth and dividend. The dividend was reduced in 2011 to free up more cash to reduce debt and the stock price fell significantly, creating this opportunity. For those who think CDR is too risky, try Washington Real Estate Investment Trust (WRE) yielding 6%.

Johnson and Johnson (JNJ) yield 3.50% - is a diversified health care company. Its high growth days are over, but it just keeps pumping out the dividends and generating free cash flow for share buy-backs. This steady eddie company belongs in every dividend investor's portfolio at the right price.

Nestle (NSRGY) yield 3.61% - is a diversified food company. Its growth rate may be limited, but everyone has heard of brands like Carnation, Libby's, Nestle Toll House, Stouffers, Baby Ruth, Butterfingers, DiGiorno Pizza, Hot Pockets, Lean Cuisine, Nescafe, Coffeemate, Häagen-Dazs, ect. It is another steady eddie company that just keeps pumping out the dividends and generating free cash flow for share buy-backs.

Phillip Morris (PM) yield 4.20% - What can be better than legally selling a product that is adictive? Aside from some of the moral issues with tobacco that individual investors will have to grapple with, it is a tremendously profitable business. I believe the international exposure of Phillip Morris will result in a greater growth profile when compared to its domestic counterpart, Altria.

TEVA Pharmaceuticals (TEVA) yield 2.00% - Teva is an Israeli pharmacological company known for its aggressive acquisition streak and its legal shenanigans ti turn patented drugs into generic drugs. Future acquisition possibilities look to be few and far between so I believe Teva will concentrate its energies on running the core business and use its excess cash flow to increase its dividend payout.

Darden Restaurants (DRI) yield 3.78% - Darden is an owner of restaurant chains and the parent company of Olive Garden and Red Lobster. Currently, it is more attractively priced than some fast food restaurants such as McDonalds. It has little international exposure and has room to expand in the area. It has run into some short-term turbulence with sales at it Olive Garden franchise, which has temporarily beaten down the price, but management is focused on turning this situation around.

For those who feel they need tech exposure, please do your own research on Intel (INTC), Microsoft (MSFT) and IBM. They have attractive yields and decent intermediate to long-term prospects.

For the ultimate turnaround play, I'd look at the much hated Bank of America (BAC). Previous management constantly overpaid for acquisitions, and made of number of strategic blunders with the prices they paid for severely damaged companies like Merrill Lynch and Countrywide during the financial crisis. I don't think value investors like Bruce Berkowitz and Warren Buffett would be putting money at risk if they didn't see light at the end of the tunnel.

As always, do your own research before committing capital.


  1. Of course it depends when you bought Conoco Phillips and whether you are willing to invest else where. I think the company is already handsomely priced, as is in comparison with the other big oil companies. It has its potential and might go a little bit higher, especially if there will be turmoil in Western Europe.

    I am going through all the major oil companies and going to publish my humble opinion atthe end of the month.

  2. I look forward to reading your analysis of the major oil companies. Everything I read about the big three indicate that XOM carries the premium price, and CVX and COP are more reasonably priced.

  3. These are some sweet dividends, given these yield-starved times. Just think, a few years ago, you could get 5% on online savings accounts! :) Thanks for the finds!

  4. Lot of familiar names there, Grouch. BPI, WRE and COP are on my watch list. Good list!

  5. I have heard enough about Mcdonald's. I believe that most investors focus on just one percent of the companies listed on the new york stock exchange or nasdaq. A stock does not have to be a household name to be a great investment. Their are many high quality stocks that are safe investments and of very good quality. But you will rarly hear much talk about them at a cocktail party.
    Some of the companies listed above seem to be excellent companies most of them household names. I have nothing against large companies sometimes their great bargains. But never overlook less well know names.