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Top 5 Dividend Picks for 2012
2011 is drawing to a close and it’s been a good year for the Daily Dividend Investor portfolio. My goal for the portfolio this year, was to grow it to the point where it would generate $500/month in passive income. Even though the DDI portfolio falls just a little short one month each quarter, it is producing well above $1500 in quarterly income!
I’m very pleased with that accomplishment.
I’ve already bumped the next goal to $600/month in income, however through some additional capital additions throughout 2012 I’m pushing to get the portfolio up to $1000/month.
As I look back on 2011 there a few stocks that are worth special mention and I wanted to share them with you. So in today’s post I’m going to highlight my 5 Top Dividend Stock Picks for 2012. A few of these stocks are already owned by the DDI portfolio and others are stocks I’m looking to possibly add in the near future.
A word of caution as you work your way through the list. You shouldn’t just use this as a “buy list”, but rather as a starting point for developing new investment ideas that may help improve your portfolio. If your current portfolio has less than 10-15 holdings, these may not be the right stocks for you now – you may want to look to more large cap / blue chip, Dow components before adding some of the names I’ll be looking at here.
The one thing all of these companies have in common, is they are all “niche” players. They all serve a specific market and they are the best at what they do. They tend to have “wide moats” – meaning that it would be hard for another company to come along and duplicate their success. Increasing dividends or paying special bonus dividends is a part of their DNA.
These are companies that look to return value to their shareholders through regular dividend payouts. When building a income producing portfolio these are just the types of companies we’re looking to add. Let’s take a look at the list…
We just looked at SUNS a week ago as they recently raised their dividend for the 3rd time in 3 months. SUNS is a BDC, or Business Development Company – a company that loans money to other companies when banks or other traditional lenders won’t. Often times the BDC will take an equity position in the borrower as well as collect interest on the money loaned. The BDC is interested in participating in the future success of the company not just providing capital.
While SUNS is a newer issue having just gone public in March 2011 and only paying a dividend since June it has shown the potential to grow income and return that capital on an increasing basis to the shareholders. The risk factor for SUNS is rated a 10 (Very High) due to it’s short operating history, however it appears to be a good way to play the “improving economy” and participate in the higher returns that go along with an early stage investment opportunity.
Diamond Offshore Drilling, Inc. – ticker: DO
Diamond Offshore has been a member of the Daily Dividend Portfolio for most of 2011. With the massive oil spill in the Gulf of Mexico this last year, many of the oil drilling stocks have taken a beating. Diamond Offshore is feeling that pain and is currently trading at $55.00 near it’s 12 month low. At first glance Diamond Offshore appears to be another ho-hum dividend stock with an annual payout of $.50 for a yield of less than 1%.
However, where DO makes it up is through their “special dividend” program which amounted to a $3.00 payout, bringing the total dividend to $3.50 or 6.36% for 2011! The risk rating for Diamond Offshore is 8 (High) since the special dividends aren’t guaranteed and do fluctuate. The good news is that with current earnings of $7.31/share Diamond Offshore can easily cover it’s existing payout with room for future raises.
The special dividend has been as high as the $5 range in previous years. With the high infrastructure costs involved in this business, there are few competitors to Diamond Offshore. In addition, the company has recently placed orders for several new rigs which will be acquired at substantial discounts due to pricing pressures caused by the last few years of economic uncertainty.
Diamond Offshore provides a compelling opportunity to play the oil trade through a dividend payer with a decent yield.
Medallion Financial or TAXI for short, has been an active player in the DDI portfolio since early last summer when I stumbled on to this niche player. As you may already know from my previous write-up on TAXI, they primarily make their money financing the purchases of Taxi Cab Medallions in cities like New York, Philadelphia and Chicago where a medallion to operate a tax cab can run as high as $1 Million dollars. The company also makes loans for other business asset purchases primarily to smaller businesses who are unable to secure traditional bank funding.
This company owns over 500 New York city taxi medallions and operates in a pure niche environment with little competition. TAXI is also very investor friendly having raised it’s dividend in each of the previous 4 quarters an pays out a very respectable yield just shy of 7%.
One note of caution on this stock, the City of New York is considering passing new legislation that would all for the the issuance of up to 2000 new medallions as early as December, 2011 to raise much needed revenue for the city. While it is expected the the proposed legislation will be vetoed – the supply and demand for taxi medallions could have negative effects on TAXI in the future. Even with a risk rating of 7 (Above-Average) TAXI remains an excellent dividend payer that should be given consideration for any income portfolio.
Washington Real Estate Investment Trust – ticker: WRE
Washington REIT focuses on buying, selling and leasing multifamily and commercial properties in and around the greater Washington D.C. area. The D.C. metro-area is a perfect place to focus on as real estate prices have remained firm throughout the economic down turn of the last few years due to the high concentration of government agencies the occupy the D.C. area. The REIT owns 73 properties with over 9 million square feet and 2500+ residential units.
Washington REIT has been rewarding it’s shareholders consistently for 40 years and on December 30, 2011 Washington REIT will payout it’s 200th consecutive dividend. During that 40 years Washington REIT has never decreased it’s dividend and raises it once per year on average. The stock which offers a risk rating of 4 (Below-Average) is trading near it’s 52 week low in the $26-27 range. At current prices the stock offers an above average payout of $1.74/share and a yield of 6.7%.
Washington REIT has been a part of the Daily Dividend Investor portfolio for over a year and I expect to add to the current position if the share price remains this low.
National Presto Industries – ticker: NPK
While you’re probably familiar with some of the small home appliances that are sold under the Presto brand name – what you might not know is that National Presto also manufactures ammunition and other mechanical products for the Department of Defence (DOD). If that weren’t diversification enough National Presto also manufactures absorbent products for babies and the elderly that it sells under a number of private label names.
I chose to highlight National Presto not because of it’s dividend yield – but rather because of it’s safety. On the risk rating scale National Presto comes in with a 2 (Low) for a few reasons. With earnings of $8.26 it can easily cover it’s current dividend payout of $1.00 by a factor of 8. The company has been in business for over 100 years, started in 1905 and has been paying a dividend for over 50 years.
The current downside is that while the stock is trading at close to $92, the yield on this stock is 1.1%. National Presto is a well tuned machine that just keeps building cash and with a dividend coverage ratio of 8x, it won’t be long before the company looks for ways to put that cash to use – which typically means stock buy-backs and dividend increases. NPK is a “sleep easy” stock. Although it is well off it’s 52 week highs in the mid-$130 range, the current price offers a chance to add this stock to your portfolio with a little better yield potential than it did 6 months ago.
The Wrap Up
I’ve given you five of my best dividend income stocks for 2012. Spend some time reviewing each one – consider how it may duplicate holdings you already have or diversify your portfolio. I’d love to hear your thoughts and opinions about these 5 picks and even what you’re buying or considering. These companies are all profitable because they do something that other don’t or can’t and they do it well. They also are companies that are focused on returning their profits to the shareholders – that’s you and me!
Build a strong, well diversified portfolio of companies like these and you’ll do well in years to come.