Today we woke up to a cool rainy Florida winter day, a perfect time for me to reflect on the next 5 stocks on my Christmas wish list (part I here ) with a nice cup of hot cocoa by my side. I’m going to keep the list to the top 10 lest I revert back to my childhood ways of writing Christmas wish lists that could have been classified as short stories. Here ya go:
6. PM, Philip Morris International: until not too long ago, part of Altria. It is the international tobacco leader and exposed to more growth than Altria. It pays a lower dividend but you get better dividend growth. Its a bit expensive right now but a dip to $50 or so would bring the dividend to the 5% level. Combine that with dividend growth potential of at least 8% and it would be a screaming buy at that price.
7. NGG, National Grid and Gas: UK and Northeast US electric utility. The only utility that is on my radar right now. Most of its business comes from the UK where it is the largest utility. Also, the UK regulatory structure is much more utility friendly than it is here in the US. NGG took a big hit when it unexpectedly issued a bunch of new shares recently and has since bounced back a bit. The share issuance was to raise capital to build out UK infrastructure. Investors over reacted. Anything close to $40 or below is worth a buy. You get a 6% dividend at these levels plus 8% dividend growth for the next 2 years at least and probably 5% thereafter.
8. INTC, Intel Corporation: yes, a tech stock for a dividend investor. I’ve posted a couple of times about the rise of tech stocks as dividend payers and this one is the cream of the crop. It is dominant in its industry and years of growth ahead of it. It pays over a 3% dividend and will grow its dividend at least 10% a year for the foreseeable future. Its a buy at $20 or below.
9. MSFT, Microsoft Corporation: yes, another tech stock. This is the stock everyone loves to hate. And its dirt cheap. So I like it . It is so hated that it is a great buy right now. It pays a 2.5% dividend yield and will also grow its dividend at 10% a year for the foreseeable future.
10. CIM, Chimera: another mortgage REIT. Its a subsidiary of NLY which was in my top 5. The difference between it and NLY is that CIM invests in non-agency mortgages while NLY only invests in agency mortgages. With current interest rate spreads CIM is minting money with low leverages and its generating ROEs of 20%+. Buy at $4 or below and collect the 18% dividend for at least another year, maybe through 2012.
Wow, that’s it? It was really hard to keep the list just to 10 stocks. I had a bunch of honorable mentions. Here is a quick list for those wanting to do some more research on their own; CEO, WAC, AT, XOM, RDS-B, WMT.
On a final note, it is no coincidence that there are no bonds on my top 10 list. There are no sectors of the bond market today that present compelling enough yields. My normal allocation to bonds has gone into one of my alternative income strategies, mainly selling options. I get to generate income and simultaneously wait for better entry prices on my top watch list stocks.
Disclosure: long CIM, NGG.