2012 Best Dividend Stocks

Yours truly has agreed to be part of a friendly stock picking contest among some fellow respected finance bloggers. I’m excited and looking forward to seeing how all of our picks turn out. This is the 4th annual iteration of this contest, but the first time I’m competing. Let the fun begin!

I’m including what I feel are the best dividend growth stocks for 2012. In the end, it’s terribly difficult to try and ascertain what the return will be for individual stocks over such a short period of time. One year in investing terms is an extremely short time frame. Due to such, any dividend growth investor worth his salt is in it for the long haul. Every single time I invest money in a company, I plan on owning it forever…unless the company’s fundamentals change significantly. Changing fundamentals and economic climates is a primary reason one must continue to monitor a portfolio and individual positions. Companies change, people change and so with it portfolios change.

With that little disclaimer being said, I hereby present my picks for the 2012 Best Stocks Contest.

Philip Morris International Inc. (PM)

Per Morningstar:

Philip Morris International is the world’s second-largest tobacco company, behind only China National Tobacco, and holds almost 16% of the non-U.S. market. The firm owns seven of the leading 15 international brands, including Marlboro, the company’s flagship brand that accounted for more than one third of total volume in 2010. Other key brands include L&M, Philip Morris, Bond Street, Chesterfield, Parliament, and Lark. 

Philip Morris has been on an absolute tear. It was up 34% in 2011. It has a solid dividend, has a dominant position in the international tobacco market and an addictive product people are willing to pay a premium for. There are few things not to like about PM. This is my top pick for 2012, and one of my largest positions. They are able to increase the price of their products faster than inflation, which bodes well for increased earnings, revenues and dividends.

Beginning price: $78.48

General Dynamics Corporation (GD)

Per Morningstar:

Falls Church, Va.-based General Dynamics manufactures ships, armored vehicles, defense-oriented information technology systems, and business jets. The firm gets around 72% of revenue from the Department of Defense and the rest from foreign sales and Gulfstream business jets. In 2010, the firm generated $32.4 billion in sales and $2.6 billion in earnings with the help of 90,000 employees. 

I could have picked just about any defense major here. I could have substituted RTN, LMT or even HRS. I went with GD though because I feel they have a solid defense product lineup backed by the private sector business in Gulfstream. Defense stocks all have compressed P/E ratios, and a number of them will likely appreciate simply on P/E expansion once some of the DOD budget issues are worked out. Investors are anticipating major defense budget cuts, resulting in the values in this sector. I’m not as bearish about our defense budgets, as I believe that worldwide armed conflict is, unfortunately, not going to cease anytime soon. 

Beginning price: $66.41

Intel Corporation (INTC)

Per Morningstar:

Intel is the largest chipmaker in the world. It develops and manufactures microprocessors and platform solutions for the global personal computer market. Intel pioneered the x86 architecture for microprocessors.

I see some value in tech, namely INTC and MSFT. I could have substituted MSFT here, as they are both cheap. I just happen to like INTC better as a business. They are a cash cow, with a dominant position in their industry. I think as server demand increases due to increased use of smart phones and cloud computing, INTC only stands to benefit. They offer a solid yield and are cheaply priced for a worldwide leader in their industry.

Beginning price: $24.25

Emerson Electric Co. (EMR)

Per Morningstar:

Emerson manages five business segments: process management (28% of sales), industrial automation (21%), network power (27%), climate technologies (16%), and tools and storage (7%). Primary products include motors, drives, valves, switches, test equipment, air conditioning compressors, electric tools, and home storage solutions.

For my last pick, I decided on EMR. I say go with what you know, and this is another stock I own. The great thing about EMR is that it was extremely weak in 2011, down over 18% on the year, and you get an extremely diversified company with just one pick. EMR is a dynamite company and I think it will be extremely strong over the long haul. They are offering a solid yield. and it’s one I’m thinking of adding to in my personal portfolio. 

Beginning price: $46.59

I’m just one blogger participating here. Check out some of the other entries:

Where Does All My Money Go
Million Dollar Journey
The Financial Blogger
Money Smarts Blog
Dividend Growth Investor
My Traders Journal
Intelligent Speculator
Beating The Index
The Passive Income Earner

Full Disclosure: I’m long PM, GD, INTC, EMR

Thanks for reading.

Comments

  1. says

    Count me as someone who’s bearish on defense stocks. OTOH, if something bad kicks off in the Persian Gulf, Heaven forbid, they could all take off. But barring that, there are going to be some major, major cuts to defense.

  2. says

    Nice list there. PM is my favorite pick, I think it’s going to continue increasing its dividend at a rapid pace and also appreciate in price. I’ve seen first hand that its products are a premium name brand that people want to buy. My experiences come from spending time in Kuwait and Thailand. I think owning PM will be a great investment, expecially if you can get in at a good price.

    I’m in the military and work in the field of satellite communications. The equipment we use is made by companies such as CSCO, HRS, CTXS, GD, and VIAS. I don’t see the military getting rid of these products, infact they can’t unless they don’t want to communicate. I believe over time the military will upgrade to better technology so these types of companies stand to win new contracts for equipment and support. I’ve dealt with GD employees and can tell you they are top notch professionals. When you talk to someone from General Dynamics you instantly know they know what they are talking about. I am somewhat concerned that budget cuts, pulling out from Iraq, and downsizing the military in general will affect defense contractors. The Army is currently reducing its size and kicking people out (although it’s not as bad in my field). I’m still long RTN and might pick up another name at some point. GD would be at the top of my list.

  3. says

    Like your picks DM! I like PM, though I hold MO, but evaluating PM.

    Not much into tech stocks, but if I were to pick one, it would be INTC. Excellent moat.

  4. says

    DM,

    These are some great picks. I’ve been waiting to pick up PM but as you said, they have been on a tear and I was hoping for a pull back. Didn’t happen today, but I picked up 100 shares of MO today on a 3% pullback. My cost basis was $28.73. By the end of the day MO pulled back 3.5% but I’m not too worried about my entry point as I will hold forever. Plus you’ve gotta love the 5.5% yield. I still have another $3K on the sidelines. Anything looking attractive to you lately?

    Cheers,

    DPS

  5. says

    Anonymous,

    Great stocks there. I like some of the others in defense, and you nailed them there.

    Best wishes with your investments. Let’s keep our fingers crossed that the DOD budget isn’t slashed dramatically.

    Thanks for stopping by!

  6. says

    High Yield Soldier,

    Hey, you probably know better than I. You have an inside track there.

    I think that some budget cuts are already baked in a little. If these stocks have extreme dips then I’ll just buy, as long-term (30 years) armed conflict isn’t going anywhere.

    Best wishes!

  7. says

    Compounding Income,

    Yes, I agree completely with PM. Great business there…a cash cow.

    I appreciate your insight on GD. I do not have that type of access, obviously. That’s great news to hear, that they are held in high regard. I like HRS here too and hold it. RTN was one I looked at multiple times and passed, to my dismay. I wish I would have picked it up in the low $40′s. We’ll see if it dips again and gets back to that 4%+ yield level.

    Take care! Thanks for stopping by.

  8. says

    MoneyCone,

    I like MO too…but not as much as PM. I think that PM has incredible growth potential, but MO serves well as a stable high yielder in a portfolio. I think going forward I’d like to own 2-4x as much PM as MO. I wouldn’t mind owning a little more MO…perhaps around 100 shares would be appropriate for my portfolio.

    Good luck with your investments in 2012! I’m hoping for a pullback. Keep our fingers crossed. :)

  9. says

    DPS,

    PM has been smokin’…literally. Hard to catch a tiger by its tail. I don’t know how much of a pullback to expect from PM. I’d like to see it back below $70 to purchase more. We’ll see. I like it long-term.

    Good stuff on MO. I have a little over 50 shares, and wouldn’t mind doubling that on MO. MO has been very strong too. It was up over 20% last year. Never count ol’ Altria out. Solid yield, dominant product.

    It’s hard to find value right now with the markets skyrocketing. I wouldn’t mind the stocks I listed above. There is some value in tech and industrials. It seems a lot of your consumer stocks have been bid up quite a bit, as we see with the tobacco companies. MCD, KO and many others have been strong and are expensive right now.

    We’ll see. I love buying, so I look forward to purchasing at least one lot in January.

    Best wishes!

  10. says

    I’ve own PM since before it was spun off. My last purchase was at $45 in 2010. At that time it was an easy call, it was trading at a PEG of 1 or so (5% yield + 12% growth + dividend reinvestment = 20%/year return) . If you believe the earnings growth estimates of 12-13% per year, you can make the case to buy this up to 24P/E or $113 (I wouldn’t pay that much).

    I think some patience is in order better prices may lie ahead.

    Mantra, I think EMR is a good selection in this market. If we get any kind of bump up in economic growth during the year stocks like EMR will get a boost. Companies like EMR are sensitive to economic cycles and will move up quickly.

  11. says

    No judgment here, just genuine curiosity: do you have any qualms about investing in PM, given the nature of their business? Are there are any businesses that you would avoid on moral/ethical/political grounds even if you felt they were strong in a financial sense? Let me again stress that I’m not trying to be judgmental (I’m pretty sure I myself own mutual funds that invest in PM and/or Altria), just curious what you think about this issue.

  12. Anonymous says

    Nice blog with good advice, but I find your ethical position rather dubious with your picks here (i.e. cigarette companies with nice ‘addictive’ products which kill thousands, and then there’s the ‘defense’…) Do you have an ethical position as to the stocks you pick, or is it just easier to ignore this? If your aim is to live “with purpose”, does that “purpose” not have an ethical side?

  13. says

    Hi everyone,

    I’m pretty sure what Mantra will say about the “ethical” issues as he’s stated his take on them before, and I largely agree. I would like to contribute to the discussion:

    If you dig deep enough there are going to be questionable practices with every company out there. This is not my way of saying there’s a free pass and be done with it; it’s just a way to point out that Mantra puts himself out there for us to compliment and critique and if there were the means and time to debate each other’s portfolios I’m sure we could all have a deep discussion. In the meantime, my take on cigarette companies is that they make and market the cigarettes, but don’t force you to smoke them. And with the “defense” companies, I’m sure you know at least one person who either works or has a relative/friend working for such a company. They previously, presently, and in the future will contribute far more than Mantra or any other small time investor to “defense”. Have we given them a hard time about their ethics? What about their families and children that depend on them? Surely they are innocent. Where would they be without their mother or father’s employment at these companies?

    Cutting this short, Mantra, myself, and many others base our investments on numbers with a little bit of feeling thrown in; everyone else can do the exact same thing, the exact opposite, or anything in between.

    Mike

  14. Anonymous says

    But in this case there are thousands of other investment options available. If the individual contribution / impact is so small, why not just invest in another company that does ‘less evil’?

  15. Anonymous says

    Anon – how do rank companies ethics? I have worked with a couple healthcare companies with mottos about helping heal people this and that. But I found the overall goal, like 99.9% of businesses are to make money, and as much as possible. Meaning they will try to get people into drugs that have the highest margins, rather than the best cost/performance ratio. I have worked with life insurance brokers that sell carriers and policies more based on profit margins than customer needs. But if you read their website they are all about doing what’s best for the client. ETC

    Tanks and planes helped liberate Europe, fight the spread of communism, etc.. If you ban tobacco products, an illegal market will immediately pop up, not to mention municipalities will lose out on a large stream of funding.

    DM – I agree about their being less values out there. I think EMR has potential, and I am also looking at adding to my AZN holdings, or creating a new position in NGG.

  16. Anonymous says

    Mantra, Have you considering PBI at all? They are a S&P Dividend Aristrocrat and seem a little undervalued at its current price point. It’s a high yield stock that’s increased dividends every year for the past 26 years.

  17. Anonymous says

    Life is too short to endure the added stress of investing in the stock of an industry which gives you a queasy feeling. I don’t invest in either tobacco or coffin manufacturers. Am I missing out on some additional income? Probably. However, a rational person must understand their emotional limits.

    I am a former aerospace engineer and have worked with the DOD for half of my adult life. General Dynamics is a good company; however, there is significant headwinds against the defense/aerospace sector. First, our level of military commitments and spending is far higher than can be supported by our economy. Second, individual weapon systems are way too expensive. The F-22 is a superb fighter, but we just can’t afford to produce it in sufficient numbers. Third, oil production rate has plateaued and is likely to decrease in the next few years due to geological restraints. Aerospace is especially sensitive to this trend.

    Intel has good numbers and has the development program to be highly competitive. I have done a little contract work with Intel and was impressed with their management.

    Ken

  18. says

    SFI,

    I agree with you. A case could easily be made to purchase PM at current levels, but I also tend to think that better prices may await us in the near future.

    I also think EMR is solid here. It’s been steadily rebounding while I’ve been sitting on the sidelines. I thought it was a nice buy at $45, and it still is….but it’s tracking back up to $50. We’ll see what the market brings us over the next couple weeks.

    Best wishes!

  19. says

    DPS,

    I agree. He didn’t. I got frustrated when he was espousing false information and that’s really the only time I tried to step in. Many ways to invest and make money..and my way isn’t the best for everyone. I think it works for me…and a lot of my readers.

    Best wishes!

  20. says

    I’ve tried to make it clear that I don’t let ethics play a major role in my investing. I invest in quality companies to make money and if you look hard enough you can find something wrong/unethical with just about ANY company in the world. There’s even many documented cases of charities misappropriating funds. Companies are run by people, and people are, unfortunately, prone to unethical decisions.

  21. Anonymous says

    Anonymous,

    This “ethics” issue has been discussed here. Personally, I say it’s an individual’s choice which companies they chose to invest in.

    If you want to put it under a microscope, then you could say…if you don’t eat 100% organic food then you support destroying the environment with chemicals and pesticides…if you have ever enjoyed light other than sunlight then you endorse polluting the environment because the electricity could have come from a coal plant…if you live in a house built with wood then you condone destroying rain forests…if you have ever driven a car or taken transportation then you think it’s okay to spill oil into the gulf…if you have ever worn cloths in your life then you endorse garments made in sweat shops by child labor…if you ever drank a soda then you love diabetes. I mean come on, I can make an ethical argument against anything. If you get paid in dollars, then your for the Iraq and Afghanistan wars because dollars paid for those wars. Where does it end?

    If you don’t like tobacco or oil, then don’t invest in it. But don’t call someone’s ethics into question when your just as guilty but chose not to shine the spotlight on your own ethics. That’s my two cents…

  22. Anonymous says

    Re: January 4, 2012 7:25 PM

    Buying vegetables (or whatever else you list there) is not the same as actively investing money in a company that produces missiles.
    The way the world is, it is impossible to be as ethical as one might wish to be. Is this a reason to not TRY to be as ethical as possible? From the above comment it seems that because we can’t be COMPLETELY ethical, we may as well not be ethical at all. If that’s the case, it’s certainly an individual’s choice to ignore the realities, and just get off on their bank balance. Have fun spending it when the world has completely gone to shit…
    That’s my two yuan…

  23. Anonymous says

    Most of the ERE websites I have stumbled across tend to advocate reducing our individual carbon footprint (ride bikes instead of owning a vehicle, live a minimalist lifestyle and not accrue lots of junk, etc).

    Very admirable indeed. So it seems like the seed to do good and make the world a better place has already been planted in the ERE community. Sure, not everything is so black and white. And that’s when it gets tricky. We have to each make our own individual decisions and live w/ the consequences.

    But in regards to a company like PM, I simply ask myself, “Would the world be a better place if cigarettes and tobacco products no longer existed?” Therefore, I choose to invest in other companies instead. Just my 2 cents.

  24. Anonymous says

    Re: January 4, 2012 8:14 PM

    I’d argue that it’s exactly the same. You choose to single out tobacco and defense. I named a bunch more like fertilizer companies, chemical companies, lumber companies, energy companies, garment manufacturers, defense companies, food companies, beverage companies, etc. Mantra said it, you can find fault with every company.

    Also, I’d say your outlook on life sucks. You run around playing the ethics police and telling everyone the only reality they should see is your reality. Well I happen to think your reality sucks. You think the world is going to sh*t and I see a prosperous future.

    Yes, thank you. I will certainly enjoy my investments while you run around the internet like a little school-yard narc…

  25. says

    Anonymous,

    Great companies there! I’m long PM as one of my largest positions. MCD is a smaller position of mine, much to my dismay as I purchased in the mid-$70′s and it quickly ran out of my reach. When I purchased MCD I had less investing capital available to me on a monthly basis.

    Great stuff. Best wishes!

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