For long-term investors, higher taxes and worries about the fiscal cliff offer a chance to buy quality stocks at a discount. The winds of change in Washington may change direction from time to time, but for long-term investors the time to enter is when there is blood on the street.
I have had more than my share of people asking for a list of stocks to own in 2013. I limited my list to stocks with large, increasing dividends that are appropriate to buy and forget about.
Predicting a year in advance is no small endeavour, especially if you want any hope of getting it right. Difficult doesn't mean impossible, however. It's difficult to predict short-term moves, too, but historical data allow us a way to peek into the markets of 2013.
Unsurprisingly, dividend-paying stocks tend to outperform over the long run. Stocks with price-to-earnings ratios under 20 also tend to outperform the latest craze. Emotion plays a short-term role in valuation, and we can measure emotion, in part, with the PE ratio.
For a company to exceed a PE ratio of 20, both earnings and revenue must be growing proportionately higher. Many people make the mistake of ignoring earnings growth and focusing on revenue. Ignoring revenue is a mistake.
The reason both revenue and earnings must be counted is because many companies are able to grow but fail to make a profit. Once growth slows (and it always does), if a company hasn't grown earnings to support an increase in stock price you quickly learn what the term "bag holder" means.
Here are the large dividend-paying stocks I think are worth owning and forgetting about in 2013.
Background: Corning creates leading-edge technologies for the fastest-growing markets of the world's economy. Corning manufactures optical fibre, cable and photonic products for the telecommunications industry; and high-performance displays and components for television and other communications-related industries.
52-Week Range: $10.62 to $14.62
Price To Book: 0.9
Earnings Payout Percentage: 24%
Glass may not initially appear sexy, but after you look at the profits the view becomes more exciting. Corning incorporates everything you want for a long-term "buy it and forget about it" type of hold.
Corning has an oversized dividend that is likely to increase, a large R&D budget, and the company is not sitting on its laurels. Corning may begin to realize inroads into the automobile industry with products for windows and windshields.
The dividend is small enough that investors may reasonably expect increases in the payout. Corning currently has an annualized dividend of 36 cents, yielding 2.8 per cent.
In the last month, the stock has really moved higher with a 67.4 per cent increase. Over half the analysts covering Corning rate it as a buy or strong buy. In the last 52 weeks, the shares are about even, with a small gain of 2 per cent. Corning has an average analyst target price of $14.62.
The last reported short interest is only 1.7 per cent of the average trading float. Short sellers are all but avoiding Corning, which is just what we want as investors.
Background: Coca-Cola Company engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Coke is the most common soft drink I came across in my travels to China.
52-Week Range: $33.28 to $40.67
Price To Book: 5
Earnings Payout Percentage: 52 per cent
Coca-Cola pays out $1.02 annually in dividend payments. The yield based on a recent price is 2.8 per cent. In 2009, when many companies reduced or stopped their dividends, Coca-Cola not only continued distributions, but increased the amount. If history is our guide, the current 2.8 per cent yield should be considered more of a starting point than future expectations.
Analysts like Coke, too. Over half the analysts covering Coke rate it as a buy or strong buy. The one-year return is 3.9 per cent, and the average analyst target price for Coke is $42.38. Notwithstanding an ineffective stock split a few months ago, I believe Coke will continue higher.
Short-sellers are next to impossible to find. Short interest is so low, it's below 1 per cent of the float. If you want a winning long-term hold that will put a smile on your face this time next year, buy Coke and receive a dividend that will have you grinning from ear to ear.