Seek Companies With Cash to Hike or Offer Dividend: Analyst

Wednesday, 7 Mar 2012 | 2:18 PM ET
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The stock market is in great shape — Tuesday’s 200-point drop on the Dow Jones Industrial Average notwithstanding — and so are corporations, Hennessy Funds Chief Investment Officer Neal Hennessey told CNBC Wednesday.

“You knew it was going to happen just because there was a huge article in The Wall Street Journal talking about how the market hadn’t closed up or down over 100 points for the last four months. So that was a given,” he said.

But “nothing’s changed,” he added. “In fact, the market’s in great shape.”

Corporations, which have been “making a tremendous amount of money” since the dark days of 2008, are doing well, too, according to Hennessey.

Attractive Opportunity in Corporate Bonds: Fund Manager
The collapse in Treasury yields offer an opportunity in the U.S. corporate bonds and high yield space, says Scott Kimball, BMO TCH Corporate Income Fund. Neil Hennessy, of Hennessy Funds, says investors should buy quality names and hold onto them.

His strategy is to look for companies that have the cash to offer a dividend, or to raise an existing dividend.

“If you look at Papa John’s, they earn $2.20 a share and don’t pay a dividend,” Hennessey said. “So there’s plenty of room for them to initiate a dividend.”

CVS Caremark, on the other hand, “pays 65 cents [a share as a dividend] and earns $2.50 to $3 a share, so there’s plenty of room to increase a dividend,” he noted. “So that’s what’s going to drive this market in a slow economy.”

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