A Contrarian’s Top Five Dividend Plays

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In this crazy stock market with extreme volatility and sensitivity, I re-examined my income producing stock strategy and realized there may be a different approach to earning great dividends while waiting for good companies to recover some value in great industries. Let’s take a look. First, let’s look at some assumptions. This is what I came up with:

  1. The oil industry in America will eventually recover
  2. Interest rates will eventually go up
  3. Health care demand will continue to grow
  4. Real estate, over time, will continue to grow in value
  5. Autos will continue set sales records due to the pent up demand since 2008

Given this scenario, I purchased these five dividend producing stocks. Here I list what I bought, why I bought it and the expected return, both in terms of dividends and long term value.

Stock # 1: Kinder Morgan, KMI, $29.40/share, 6.7% Dividend Yield. I expect the price of oil, natural gas and CO2 to normalize over the next 18 months, which could bring the price per share back into the $40/share range for a 30% upside.

Stock #2: Medical Properties Inc, REIT, MPW, $11.55/share, 7.7% Dividend Yield. I expect health care and the need for hospitals to be in increasing demand, in America and abroad. Yes, interest rates raising may put negative pressure on the stock but a 35% forecasted growth rate in assets could bring a stock price upside of 25%.

Stock #3: General Motors, GM, $29.40/share, 4.9% Dividend Yield. With the pent up demand for autos, the currently low oil prices, and GM’s strong position in high margin SUV’s and trucks, I expect GM to return to historical PE levels (10.8) which gives the stock a 48% upside.

Stock #4: Southern Co, SO, $29/share, 4.99% Dividend Yield. With the recent conversions to natural gas and looming interest rate hikes, this stock has upside of 5-7% annually.

Stock #5: Wells Fargo, WFC, $51.40/share, 2.87% Dividend Yield. With interest rate increases expected, this stock could return to its historical PE ratio (16.2) which gives the stock a potential 32% upside.

There you have it. It is a portfolio that returns an average 5.5% dividend yield and a significant stock share price upside if you believe the assumptions listed above and have the time to wait for each catalyst to materialize.

What do you think?

3 thoughts on “A Contrarian’s Top Five Dividend Plays

  1. i found this blog through your questions on 1500 days to freedom. nicely done.

    you should know that i could never invest in kinder morgan. they’re currently in the process of subverting democracy across massachusetts to install a natural gas pipeline across rural communities here. without exception, every town along the proposed pipeline has voted to not allow the pipeline due to the numerous risks it poses to the inhabitants as well as the environment. kinder morgan is now pursuing the installation via eminent domain.

    kinder morgan represents the very worst sort of company that makes its money through the destruction of the environment and numerous communities as evidenced by the way they conduct business via lobbying the government. they’re literally turning a government on it’s people. it is the antithesis of democracy.

    i live in a beautiful rural community in western massachusetts. it’s a place where we have many farms that feed the entire northeast. these farms are having to entertain the possibility of moving because of this proposed pipeline. it wouldn’t only ruin the place i live, it would also ruin my local food supply.

    as a community we’ve been asked to attend meeting after meeting after meeting to show our opposition. it’s taken so many hours out of our lives already. as far as i’m concerned once we voted that should have been it, but it wasn’t. kinder morgan continues to work against the majority vote of the people in these communities.

    i emplore you and anyone else that has kinder morgan stock [KMI] to sell and not look back. i could never support a company that cares so little about people and the places they live.

    Like

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