Now that we know that first-quarter gross domestic product (GDP) was anemic and the Federal Reserve is thinking about changing interest rates, individual stock selection is even more key in this market. And I still like dividend-paying stocks; they can outperform with sales and earnings growth slowing.
In a rising-rate environment, dividend-paying stocks can perform less favorably. Utility stocks, for example, recently sold off on the central bank’s talk about raising interest rates.
But because of the lack of genuine economic growth in the U.S. economy and many other Western countries, the rising cost of capital is more likely to be slight and therefore less burdensome to dividend-paying stocks and the equity market in general.
In addition, recent musings by the Federal Reserve seem to hint that the central bank is worried about the labor market. Therefore, the first interest rate hike may be delayed well into next year. So now’s the time to consider some of those dividend-paying stocks. Here are two prime examples:
Kinder Morgan, Inc. (NYSE/KMI)
I’ve liked Kinder Morgan, Inc. (NYSE/KMI) for a while. Formerly Kinder Morgan Energy Partners, L.P., the newly consolidated parent company plans to increase its annual dividend by double digits year-over-year until the end of this decade.
While all energy producers benefit from rising commodity prices, Kinder Morgan has been holding up extremely well compared to its peer group. And part of the reason is the company’s pipeline and storage assets.
Who benefits from the surging domestic production of oil and natural gas? Pipeline and storage companies that sign long-term contracts to move hydrocarbons, that’s who.
Naturally, good businesses that trade on the stock market are typically fully priced and already owned by institutional investors. This is the case with Kinder Morgan, but it is one of the market’s higher dividend-paying stocks.
The Walt Disney Company (NYSE/DIS)
Also worth considering among investment grade equities is The Walt Disney Company (NYSE/DIS). This stock has been and should continue to be a solid wealth creator, as the company’s theme park and lodging assets have shown real strength in recent quarters.
Disney reports its second fiscal quarter of 2015 on Tuesday, May 5. It will be very interesting to see if its theme park momentum continues.
It’s not the highest yielding among blue-chip dividend-paying stocks (current yield is approximately one percent), but it’s reasonable to expect more capital gains from a position like this.
In recent years, investors have been buying dividend-paying stocks for their business and earnings stability and predictability.
Disney is typically very good with its financial reporting, providing the marketplace with useful explanations of its business conditions. (See “Four Top Stock Groups for Your Investment Portfolio in 2015.”)
Even if you aren’t necessarily interested in an entertainment investment like Disney, the company’s financials offer valuable insights and market intelligence.
While this is a more difficult stock market in which to be considering new positions, the investing marketplace has already spoken with regards to which stocks it likes.
And accordingly, I’m still a fan of the market’s existing winners, particularly pertaining to investment grade, longer-term investments—of which many are dividend-paying stocks.