At mid-week last week, there were 240 holdings spread out among
a dozen real-money and model portfolios in the various
StreetAuthority advisories. Nearly 70% of these stocks were in
positive territory. To put it in the parlance of a daily
stockmarket update, the winners outnumbered the losers by more than
two to one.
InInvestment Strategists told you about their absolute favorite
stocks in any market. Now, here's part two, courtesy of
StreetAuthority Co-Founder Paul Tracy, who edits our
The following stocks are among the cream of that crop...
Top 10 Stocks
Cisco Systems (Nasdaq: CSCO)
is the perfect example of what can happen when investors worry
about "the market" instead of focusing on owning great
Three months ago, Cisco'sshares soared 10% in a single day
following its quarterlyearnings announcement and a 75% increase in
its quarterlydividend .
But then people started to worry about a slowdown in Europe...
or the "fiscal cliff"... or that the market was falling. Frankly,
But I can tell you that they weren't focused on the unstoppable
trend of increasing Internet usage around the world. Internet
traffic is set to quadruple by 2016. And they weren't focused on
the fact that Cisco serves as the "backbone" of the Internet thanks
to its supply of routers and switches.
And they weren't focused on the fact that Cisco has posted
record revenue in each of the past three years... or that it has
increased its dividend 133% in less than a year... or that it has
$45 billion incash on its books (equal to about $9 per share)... or
that thanks to buybacks, the company'sshares outstanding have
fallen 21% since 2004.
In fact, since Cisco announced itsearnings and increased the
dividend in August, the shares had fallen 15% from their peak. It
made no sense.
Hopefully that's now changed. A couple of weeks ago, the company
announced its latest earnings. Sales rose 6% year-over-year,
whilenet income rose 18%. Cisco also returned $1 billion to
investors during the quarter via buybacks and dividends.
The stock soared 5% the day after the announcement... a day in
which the overall market fell 1.5%. So in the course of three
months, investors saw the stock soar 10% in a single day on the
heels of a great quarter and a massive dividend increase, only to
fall alongside the market, and then soar 5% again with the next
If you've ever needed proof that the best way to invest is to
focus on an actual business -- and not all the other "noise" and
bumps in the road that have little or no bearing on its future -- I
hope Cisco serves as an example.
Action to Take -->
The company continues to do everything a great business should --
dominate its growing market, pay increasing dividends and buy back
shares. At these prices, I still consider the stock one of the
market's best values.
The Daily Paycheck
One of the engines that drives my
portfolio is compound growth. By reinvesting dividends, I can hold
safer and less volatile securities -- yet still achieve the same
growth as the overall market.
If I hold securities that increase their dividends over time, my
growth compounds even more quickly.
One of my very first purchases for
The Daily Paycheck
portfolio back in December 2009 was
. I still own it today and it is a stock I can see holding for the
next 10 years. When it comes to dividend growth, it's hard to beat
AT&T's track record. In November, AT&T raised its annual
dividend for the twenty-ninth consecutive year.
Cellphones were once considered a luxury. Now, wireless phone
service is considered more of a necessity than a dishwasher or TV.
This accounts for why wireless providers tend to be more resilient
in economic downturns. And in better times, consumers upgrade their
phones to take advantage of more broadband-intensive services such
as video and music.
AT&T was founded in 1885 shortly after Alexander Graham Bell
invented the telephone. Today, it is the largest telecommunications
holding company in the world by revenue. It has the largest 4G
network -- the most advanced wireless technology -- serving more
than 100 million wireless customers in the United States.
Action to take -->
I always envision holding AT&T in mytax rate may be allowed to
increase as a result of the ongoing budget negotiations in
Congress. As a result, there could be a temporary sell-off in
dividend stocks such as AT&T. This, in turn, could allow
investors to lock into a lower price -- and a higher yield -- for
one of the most dependable income producers in the market.
To make money as an income investor, you must pick stocks that
can be held for the long term -- as long as the fundamentals remain
strong and the environment is favorable.
Case in point:
Magellan Midstream Partners (
, which owns the longest refined petroleum product pipeline system
in the United States.
Thepartnership has not missed a distribution since starting
payouts in 2001. In fact, distributions have been hiked every
quarter, except for five quarters when they remained stable in the
aftermath of the 2008 financial crisis. Distributions have grown at
a robust average of 7% a year for the past five years.
I love equities like Magellan that grow their distributions
because that allows you to increase your yield-on-cost, the current
dividend rate as a fraction of your purchase price. If you bought
the units when I did back in September 2005 for
, then you would enjoy a stunning yield-on-cost of better than 11%.
If you're a new investor, then you shouldn't need to wait a long
time to achieve a similar yield-on-cost. Management is targeting
18% distribution growth in 2012 and a further 10% distribution
growth in 2013.
Moreover, distributions are secured by stable, fee-based
businesses that account for around 85% of operating margins. That
leaves only roughly 15% of profits exposed to volatilecommodity
prices, and the company has ahedging program in place. Revenues are
also tied to government-regulated pipeline tariffs, which have
Management projects another record year in 2013 as expansion
projects come online. The partnershipwill also benefit from a 6.6%
increase in pipeline tariffs on July 1, 2012.
Magellan was one of my first
portfolio additions. In just over seven years, I'm ahead by about
220%. Of these returns, roughly 60 percentage points come from
dividends and 160 percentage points from price gains.
Action to Take -->
Magellan's dividend growth track record, long-range capital
expenditure plans, and tight hold over essential energy
infrastructure all bode well for continued gains in the years
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