While real rebound in the economy is still uncertain, the best investments may be in stocks that pay investors to wait. Dividend plays are back in demand and Michael Crofton, CEO of Philadelphia Trust Company and Tim O’Brien, senior portfolio manager at Evergreen Utility and Telecommunications Fund said they should remain the core of any portfolio.
“Historically, dividend income has accounted for half of the equity investors’ total return and the compounding of income over time has been a powerful builder of wealth,” O’Brien told CNBC.
O’Brien said that since the founding of the Nasdaq, the S&P utilities index has outperformed annually by almost 100 basis points.
“The easiest thing for investors to look at is the payout ratio,” he said. “We own a lot of utilities—they’re underperforming a little bit—but the last time utilities underperformed they subsequently went on to return over 20 percent a year.”
In the meantime, Crofton said investors should avoid the financial, homebuilder and some retail companies, but food and some tech names still offer good dividends for investors.
“They have their costs under control and if we see a little bit of revenue growth in the third and fourth quarter of this year, then those stocks can really perform,” Crofton said of the sectors. “But in the meantime, their dividend yields are significant and they’re going to pay us to wait for the market to turn.”
Crofton and his firm owns shares of Coca-Cola, Kraft, Intel and NYSE Euronext.
O’Brien owns shares of CMS Energy, Constellation Energy and First Energy.