If you’re looking for stocks to buy and hold, here’s a strategy as well as a few names you should know about.
The strategy is simply dividend investing. If you think that’s sounds complex and like it’s going to involve a lot of math – think again.
- Cramer’s Top 5 Dividend Plays
Dividend investing simply means taking positions in stocks with a rising stream of dividend income.
Okay. So what kind of criteria should you use? Goldman Sachs recently released a new piece of research on this strategy. They recommend the following:
- Companies with at least 3% yield.
- Companies with a consistent dividend history.
- A likelihood of dividend growth.
- No companies with debt-to-equity greater than 100%
- Only companies that are "buy-rated"
If that 3% yield seems a little out of left field it’s because historically inflation rates have been around 3% over the past century. Therefore, by focusing on companies, which have a long history of dividend increases of over 3%, you beat inflation – at least on average. (That little tid bit comes from GuruFocus.com)
Phew! You made it this far. Now where on earth are you going to find stocks that fit the criteria mentioned above.
Fortunately for all of us, Goldman did the number crunching, already! They put together a list, which you'll find below. (We must give credit where credit is due. It was actually first published by BusinessInsider.com)
Company Target Price Dividend Yield
AT&T 34 6.4%
Verizon 36 6.4%
Lorillard 94 5.5%
Philip Morris 62 4.9%
McDonald’s 72 3.6%
Abbott Labs 60 3.3%
Coca-Cola 62 3.2%
Molex 27 3.0%
Analog Devices 33 3.0%
Source: Goldman Sachs
Looking at this list, "I love Abbott Labs," says Joe Terranova. "They have a strong balance sheet and lots of cash flow. I think it's a $60 stock. And with its dividend yield I think it's all the more reason to be an owner of Abbott."
And if you want to strike out on your own and incorporate this strategy into your personal trading thesis, Goldman has a little more information that’s valuable as you begin establishing positions.
They complied a list of sectors in which companies are expected to pay the highest dividends. They are in descending order:
3. Beverage / Food / Tobacco
And in interest of presenting all angles of a trade, not everyone agrees with this strategy. Gary Kaminsky is among the skeptics.
“I think to buy stocks based on dividend yields is a loser's game," he says. "If interest rates go up next year as I suspect they will, these stocks will be negatively impacted. Instead I'd stick with predictable earners.”
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Trader disclosure: On November 19th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Najarian Owns (BP) Calls; Najarian Owns (DELL) Dec. Call, Is Short (DELL) Nov. Calls; Najarian Owns (INTC), Is Short (INTC) Calls; Najarian Owns (MCD) Call Spreads; Najarian Owns (TXN), Is Short (TXN) Calls; Najarian Owns (UUP) Calls; Najarian Owns (YHOO), (YHOO) Puts; Najarian Owns (BG) Calls; Najarian Owns (KG) Calls; Terranova Owns (POT), (GOOG), (AAPL), (SU); Terranova Owns (UNG) April 2010 Calls; Terranova Owns (FDX) Dec. 2010 Calls; Terranova Is Short Crude Oil January 2010; Terranova Owns Crude Oil December 2010
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
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For Jim Iuorio
Iuorio Owns (UN), (MCD), (FXE), (FXC),( DELL)
Iuorio Owns (GLD), (GLD) Puts, Is Short (GLD) Calls
Iuorio Owns (ABX) Calls
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Iuorio Owns Put Spreads In S&P Futures, Is Short Call Spread In S&P Futures
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