May 8, 2014, 6:00 a.m. EDT
Article from http://www.marketwatch.com/
Opinion: They’ve beaten the broader market this year but are still overlooked
It’s been a choppy stock market so far in 2014, particularly for the “risk on” momentum shares that were last year’s leaders.
Popular biotechs like Vertex VRTX +1.96% are off by double-digits. Tech mainstay Amazon AMZN +1.36% is down about 30%. And recent cult stocks Twitter TWTR -0.03% and 3D Systems DDD -0.08% have been cut in half this year.
Of course, it’s not all gloomy. The broader market indexes have slowly plodded about 1% higher in the face of these troubles.
And some stocks have pushed even higher.
What are those picks? Surprisingly, they are some of the sleepiest names on Wall Street — defensive blue-chip dividend payers that were largely overlooked during the market’s roaring run of 2013.
And as the market gets more selective and investors increasingly move “risk off,” these picks could continue to do very well across the rest of 2014.
Here they are:
Ventas VTR -0.94% — 19% return this year, dividend yield of 4.3%. VTR -0.94%
Longtime readers of my column (hello to all three of you!) will know that one of my favorite long-term investing trends is the demographic shift in America that is taking place. As Baby Boomers age, it will transform many industries, particularly across health care.
A great way to play this trend is via high-yield real estate investment trusts that focus on elder care. A company like Ventas is a perfect example, since it controls some 700 senior-housing facilities, 400 skilled-nursing facilities and 250 medical-office buildings across the U.S.
Of course, this demographics trade hadn’t really borne any fruit across 2011 and 2012 as health-care REITs remained stuck in neutral, but the risk-off environment and a hunger for yield amid falling Treasury interest rates has re-energized interest in stocks like Ventas.
But short-term stock performance aside, the dividend is what should keep you interested in Ventas long term.
Even after the run-up, the stock, VTR, yields 4.3%. The company has increased its distributions 120% in the past 10 years, from 32.5 cents per share in 2004 to 72.5 cents today.
Ventas is also gobbling up smaller competitors, with eight major acquisitions over the past decade that total over $16 billion, in order to ensure future growth. These are also high-quality purchases, with so-called triple-net leases that mean tenants, not Ventas, are obligated to pay for any property-related expenses like taxes, maintenance and insurance.
Given the recent tailwind in a risk-off environment, Ventas could perform well for the rest of the year. And given its long-term dividend potential, investors should have confidence that this REIT is not just a swing trade but a legitimate holding for many years to come.
Johnson & Johnson JNJ +0.41% — 9% return this year, dividend yield of 2.8%.
Johnson & Johnson is an old favorite among defensive dividend stocks. It’s a health-care play — but also a consumer-staples play, thanks to popular brands including Band-Aid, Tylenol and Splenda.
The health-care angle makes the stock, JNJ, pretty recession-proof, since medical expenses don’t go away even in tough times, and the company’s consumer-brand power gives it stability for the long run.
Many investors have been overlooking Johnson & Johnson after the company struggled from 2010 to 2012 amid quality-control issues and big product recalls. However, since CEO Alex Gorxy took over two years ago, the company has been marching steadily higher. The stock is up almost 60% since Gorsky took over vs. 35% or so for the S&P 500. That includes an impressive gain of 9% this year despite a pretty flat market.
And, long term, J&J has a total return of about 140% including dividends over the past 10 years, thanks to distributions that have increased 145% from 28.5 cents per share each quarter in 2004 to 70 cents today.
While naysayers may point out that Johnson & Johnson could be overvalued after this run, it’s still trading for about 15.5 times future earnings — which is exactly the forward P/E of the broader market right now.
I have confidence that J&J will hang tough even if things get increasingly volatile in 2014. But more importantly, I’d have confidence in buying shares for a long-term, dividend-oriented portfolio right now.
Intel INTC -0.08% — 2% return this year, dividend yield of 3.4%.
Intel is another stock like Johnson & Johnson that has largely been overlooked for the past few years. But those who haven’t been paying attention for some time may have missed out on the recent strength in this chip maker.
Sure, the mobile revolution is severely limiting the growth potential for Intel, and revenue has been stagnant since 2011. However, despite a continuation of top-line issues in the first quarter, there are signs that Intel is much better off than some naysayers believe.
Intel beat expectations in the first three months of the year, thanks in part to its data-center business and (surprise!) corporate PC sales.
The strong outlook for corporate sales resulted in a number of analyst moves on Intel, including an upgrade to “buy” at Deutsche Bank with a $30 target. Separately, Pacific Crest and Jefferies each reiterated bullish calls with $32 and $35 targets, respectively.
I remain convinced that the poor performance of enterprise tech over the past few years will start to change as businesses begin to invest again. And if that trend proves true, we could see Intel continue to see growth in its data center and PC business in the short term.
Long term, Intel continues to make progress on mobile chip sets and adapting its business to a new environment. Beyond the strategy, there’s the juicy dividend and a strong history of increases. Intel’s dividends have advanced 450% in the past 10 years, from 4 cents quarterly to 22 cents, but are still comfortably below half of projected earnings.
And with $30 billion in cash and investments on the books, and over $20 billion in annual operating cash flow, there’s a reasonable expectation of continued dividend growth going forward.
JEFF REEVES'S STRENGTH IN NUMBERS
May 8, 2014, 6:00 a.m. EDT
Article from http://www.marketwatch.com/
