Two Stock Picks That Will Succeed No Matter Who Is in Washington
By Marc Lichtenfeld Sep 05, 2012 3:30 pm
"Get Rich with Dividends" author shares his thoughts.
One of my favorites stocks these days that qualifies under the 10-11-12 System is Intel (INTC). The stock pays a dividend yield of 3.4% and has raised the dividend by double digits every year for nine years. Its most recent increase was its third in eighteen months. Plus, the company only pays out 22% of its profits to shareholders, so it has plenty of room to continue raising the dividend in the future.
Intel is the leading semiconductor manufacturer in the world and dominates the computer processor market with roughly 80% market share. The increased use of the cloud should benefit Intel, as more cloud use requires more servers, which is Intel’s sweet spot.
Intel is a blue chip company that deserves a spot in any core dividend portfolio.
Brookfield Infrastructure Partners (BIP) is certainly lesser known than Intel, but also deserves your consideration. The company operates a diverse group of businesses all over the world. It runs ports and railroads in Australia, toll roads in Chile, gas pipelines in the US, timberland in Canada, and transmission lines in several countries.
It pays a 4.3% yield and has raised the payout every year for five years. Roughly 80% of its revenue is secured by contract or government regulation, so management has great visibility on earnings, cash flow, and its ability to pay and raise the cash distribution.
Additionally, Brookfield is a terrific idea if you’re concerned about taxes. Brookfield Infrastructure Partners is a master limited partnership (or MLP). Typically, most of an MLP’s cash distribution is considered a return of capital. This means the payout will not be taxed as a dividend. Instead, it will lower your cost basis and may lead to capital gains when you sell the stock. At that point, you will be responsible for taxes on any capital gains.
But for those seeking tax deferred income today, especially if you’re concerned about the expiration of the Bush tax cuts and a hike in the tax rate on dividends, a master limited partnership like Brookfield may be the answer. Just be sure to speak with your tax advisor before investing as MLPs can complicate your tax return and you want to make sure the cost and risk is worth the benefit.
Setting up a portfolio of stocks with solid yields that raise the dividend every year is the best way to ensure you capture excess returns, even beyond the strong performance of the market decade after decade, no matter who was in Washington or any other world capital.
Marc Lichtenfeld is the author of Get Rich with Dividends, A Proven System for Earning Double Digit Returns. He is also the Associate Investment Director of the Oxford Club and the editor of the Ultimate Income Letter.
No positions in stocks mentioned.