A lot of companies reported pretty decent earnings this past quarter, yet their share prices went nowhere. It’s emblematic of the fatigue in equity market sentiment and genuine worries about economic growth this year.
Countless brand-name companies beat the Street with earnings results but saw their sales growth come in modest due to the stronger U.S. dollar. Of course, it’s not too difficult these days for a company to beat consensus; all management has to do is under-promise.
I think there is little reason to get excited about stocks this year. Good news has already been bid and share prices are, for the most part, fully valued. Having said that, while growth prospects for global economic growth are diminishing, the health of corporate balance sheets is a real bonus for investors. With the continued low cost of capital and plenty of cash on large-cap balance sheets, the prospects for increasing dividends and share repurchases remains solid.
The Kind of Income Stock to Look for in This Slow-Growth Market
Dividend reinvestment is an investment strategy I highly recommend for those portfolios that have longer time horizons. Quarterly (or monthly) dividends can really add up, and automatic reinvestment in new company shares is a great way to build wealth from a longer-term position.
Income Stock #1: Kinder Morgan, Inc.
Those interested may wish to consider a large-cap company like Kinder Morgan, Inc. (KMI), which has considerable assets in the transportation of hydrocarbons and is a great example of what investors should be looking for at this time.
This should continue to be a very good business to be in, likely for the rest of this decade on strong domestic production. And a pipeline company tends to operate with long-term contracts that aren’t directly related to spot prices, which is something investors need to consider when looking at a commodity or energy stock.
Kinder Morgan has already stated that it plans to increase its annual dividend by a minimum of 10% per year until 2020. This company is a perfect example of the kind of candidate investors should seek for dividend reinvestment. The position has held up very well considering the plunge in oil prices.
Income Stock #2: Canadian National Railway Company
Canadian National Railway Company (CNI) has substantial rail track assets across North America and can also serve as a good example here. The company just reported record freight volumes for 2014 and management increased its quarterly common share dividend by a substantial 25%. (See “CSX, Railroad Stocks Report Decent 4Q14 Growth; More to Come.”) According to the company, its dividends to stockholders have, on average, grown 17% per year since 1995.
Income Stock #3: Amgen Inc.
Then there’s Amgen Inc. (AMGN), which just produced a very good fourth quarter, with a six-percent comparable gain in sales and a 27% increase in earnings. This is another good example of what investors interested in a long-term income play should be looking for.
Amgen has been increasing its dividends substantially over the last several years, and it currently has plenty of cash on its balance sheet to fund drug development and keep increasing its payout to shareholders.
Businesses can’t manufacture growth, but they can and do work their balance sheets to keep investors happy. Rising dividends and share repurchases have been top corporate trends since the financial crisis and in a slow-growth environment with very low capital costs, this should continue.