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Choose Strong, Large-Cap Dividend Payers: Portfolio Manager

Regina Hing|Special to CNBC.com
Thursday, 15 Mar 2012 | 5:28 PM ET
Chevron
Laura Rauch
Chevron

If investing in the stock market is starting to look appealing again, here’s what you need to look for: Large-cap companies that have strong sales and cash flows, and that also pay high dividends, regardless of sector.

That’s the advice of Brian Peery, portfolio manager for the Hennessy Cornerstone Value Fund, rated five stars by Morningstar.

His first pick — waste-management company Republic Services — may turn off some people, but he said predictable revenue streams and a 2.9 percent yield make Republic a “great business.”

“It’s a stable industry" and the company has “predictable cash flows and good earnings visibility because they’re set up with multiyear contracts,” said Peery, who also manages the Hennessy Large Growth Fund.

He also likes Procter & Gamble, whose revenue on its six business lines are up. Peery thinks P&G is “extremely shareholder friendly,” although the company has been hampered by manufacturing issues and rising commodity prices lately.

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“If commodities come down a little bit, you can look for some margin expansion,” he noted. Another event to look out for is if the U.S. dollar weakens and nudges the cost of exports higher for the company.

Lastly, Peery cited Chevron as an “absolutely” good pick for the long term. He said with its price/earnings ratio of 8.4, shareholders earn roughly $13 a share. He likes the dividend and, as with Republic Services, the shares offer a 2.9 percent yield, roughly equivalent to what shareholders get by investing in long-term U.S. government debt.

“If you believe in 10 years, as we do, that Chevron is going to [get] higher … they’ll give you a great return and, hopefully, capital appreciation as well.”

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Disclosures:

Disclosure information was not available for Brian Peery or his company.

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