Between games of pick-up basketball, one of my favorite players — killer jump shot — sidled over and asked me what he should do with an “extra” $10,000 he’d come into courtesy of a nice bonus.
These are always difficult questions to answer. I’m never quite sure what kind of time horizon is involved, nor what the risk profile or tolerance is — and I sure don’t want to be the guy who causes people to lose money.
After a few minutes of discussion we agreed that the investment should go to income stocks that would provide him with a steady stream of quarterly dividend cash for at least the next 5-10 years, with a strong dividend yield north of 3%, and at a P/E ratio that sits at a 25% discount to that of the S&P 500, which stands at just under 19x earnings. After all, why not seek out what might be an undervalued play? For good measure, I’ve made it so at least one of the picks pays out its dividend in different months than the other two.
Now, before we get to the list, I’ll admit the thought of taking a bit of a flyer with “found” money crossed my mind. Dan Burrows suggested that doubling up on some current winners could pay out well, and any of the the three he suggests could be worth the gamble. However, I might look at biotechnology giant Amgen (AMGN). The company is at the forefront of genetically based research for cancer, anemia and other illnesses; it pays a dividend (unlike most biotechs); and it trades for just under a 20x P/E multiple.
But if safety and security is what we’re looking for — and that was a ground rule — let’s look at three I’ll present to my sharp-shooting colleague. See what you think: