by Richard Young | November 18, 2010 9:38 am
As Phil Gramm notes in a recent, excellent Wall Street Journal essay: “During the average recovery since World War II, gross domestic product (GDP) surpassed the pre-recession high five quarters after the recession began. It has never taken longer than seven quarters. Yet today, after 11 quarters, GDP is still below what it was in the fourth quarter of 2007.”
Put another way, if you believe the rally is here to stay and that it’s smooth sailing for our economy as the recovery takes shape — think again. Investors need to continue to be cautious and seek out low-risk, high-yield dividend stocks as a way to insulate their portfolio.
To help you hunker down, here are five top dividend stocks to buy now…
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With a dividend yield of 6.4%, the income appeal of Kinder Morgan Energy Partners LP (NYSE: KMP) is obvious. But there’s likely upside for shares in store, too.
In September, Kinder Morgan increased the size of its market-leading subsidiary Kinder Morgan Treating by buying Gas-Chill Inc. The companies build machines and facilities that remove natural gas liquids from the streams of natural gas flowing through pipelines. Gas-Chill builds condensers called mechanical refrigeration units (MRUs) that cool the natural gas enough to separate the liquids, send the gas on its way down the pipeline, and store the liquids for future use.
There isn’t a lot of competition in this space, and the acquisition of Gas-Chill gives KMP even more dominance. KMP shares have outpaced the market about 2-to-1 so far in 2010, and I expect the trend to continue.
I first recommended the The Bank of Nova Scotia (NYSE: BNS) in my Intelligence Report advisory service on May 13, 2009. If you would have bought shares the next day, you would be up 79% — and with a 3.6% yield and good momentum, I expect those gains to keep on coming.
The breakout in BNS shares of about 9% since September 1 is a bullish signal, especially when you consider that many U.S. financial blue chips like Bank of America Corporation (NYSE: BAC) are significantly in the red despite this September rally.
See also: When Is it Time to Sell a Dividend Stock?
When it comes to dividends, you’ll rarely find a better sector for high-yield stocks than utilities. And when it comes to utilities, there are few that are bigger and better than Duke Energy Corporation (NYSE: DUK).
The company boasts a $23 billion market cap and a 5.5% yield. Admittedly, DUK stock has lagged the market lately and big Wall Street firms have downgraded Duke. But my analysis shows that this is a signal to buy at a bargain.
Legalized monopolies like utilities are great low-risk investments if you strike at the right time, and that time is now for DUK stock.
For 21 consecutive quarters, H.J. Heinz Company (NYSE: HNZ) has been hitting on all cylinders, posting organic sales growth in each quarter. Spice things up with a 3.7% dividend, and you have a good recipe for investment success.
The driving factor behind Heinz sales and profits is that famous brand name. Customers worldwide can’t get enough of Heinz’s great brands, like Ore-Ida, Weight Watchers and of course Heinz ketchup. When investing in common stocks, it’s important to look for strong, consistent cash flows that can be used to pay out generous dividends to you. Heinz’s cash flow in the second quarter was up nearly 80% from the year-earlier quarter. Heinz used its cash this year to reward shareholders with a 7% increase in dividends.
My relative strength analysis shows that Heinz outperformed the S&P 500 by 40% over the last five years. That means HNZ is a tasty addition to your portfolio.
Like Duke Energy, Xcel Energy Inc. (NYSE: XEL) is a great utility stock that you can snatch up at a bargain. With a yield of 4.2%, it is also a high-yield income investment. After a brief dip below its 200-day moving average in May, Xcel has broken out to reach over $23 per share.
Xcel is the No. 1 wind power provider in the nation and has displayed a major commitment to diversifying its sources of energy. Xcel will be converting nearly 900 megawatts of coal power in Colorado to natural gas generation. Xcel is already the nation’s fifth-largest provider of solar power.
Diversifying sources of energy protects utilities from price spikes in energy resources and gives the utilities better bargaining power with suppliers. That means more profits and more assured dividends for investors.
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