The team at Motley Fool Million Dollar Portfolio has a thing for dividend-paying companies. It's nothing personal; it's just that Ron Gross and his colleagues enjoy getting paid to invest. Today, Ron shares three such companies that he's watching for possible inclusion in his real-money portfolio. For your investing convenience, you can now create your own version of My Watchlist, free and easy from the Fool -- just go to www.MyWatchlist.com or click on one of the links at the bottom of this article.
One to watch
National Grid (NYSE: NGG ) has got the power in the United Kingdom, or at least it owns much of the electric grid in the U.K. as well as the northeastern United States. Investors got spooked recently when National Grid diluted shares in order to raise $4.6 billion in new capital, catching the eye of the MDP team. As team member Alex Pape wrote earlier this month, "For new investors, though, the stalwart company just got interesting. That money was raised to fund infrastructure upgrades (is it any surprise that our power grids need upgrading?), and regulators, who control National Grid's rates, are increasingly allowing them to raise prices, in part to fund the investments. The upgrades should make the company's operations more efficient (read: cheaper) in the future, and while we wait for that to play out, investors can sit back and enjoy a whopping 6.1% trailing dividend yield."
Ron and the team are waiting to see if regulators will permit the company to raise rates high enough to allow profitable investment in its infrastructure and they're watching the share price closely.
Two to watch
Ron's also intrigued by payroll processor Automatic Data Processing (Nasdaq: ADP ) , which runs payroll for more than half a million employer clients globally and also offers human resources, taxes, and benefits administration. As Joe Magyer wrote when he recommended the company in Income Investor (MDP considers recommendations from all our services), "I'll be frank: I have a crush on this business model. Capital needs are low, revenue comes in like clockwork, and customers face high switching costs. The proof is in the pudding: ADP's average client retention is more than 10 years in its core payroll business, and it shouldn't come as much of a surprise that the company's stock has whipped the market over the past five, 10, and 15 years."
Ron appreciates that ADP has $1.2 billion in cash and almost no debt, as well as a dividend yield of 3%, but he thinks it's a little pricey at the moment. But with this business model firing on all cylinders, he's keeping an eye on the company. He wants to see how rising interest rates will affect cash flow as ADP pockets additional interest on the money it holds for employers, and whether that's already built into the stock price.
Three to watch
Finally, Ron goes to the way-back machine for a recommendation from the February 2005 issue of Income Investor, Unilever (NYSE: UL ) . As team member Tim Hanson wrote in December when MDP added the consumer-products giant to its watchlist, "How can we buy emerging-markets exposure below emerging-markets prices? ... The key is to find developed market stocks that are making emerging markets a big part of their growth strategies."
While its stable of brands is gaining popularity around the world, the team is hoping some headwinds make Unilever less appealing to investors. Rising food prices will put pressure on Unilever's margins and Europe's economic difficulties could make the sailing a bit choppy, but these are short-term stumbling blocks. Wrote Tim, "Our hope in 2011 is that the market sours on this blue chip for these reasons, giving us an attractive entry point to own world-class brands, an attractive emerging markets growth story, and a 4% dividend yield as part of our basket of stocks that is protecting us from a decline in the value of the dollar."
And that's why it pays to watch. Keep your eyes on all of these companies by adding them to My Watchlist, your free and customized hub for the news and numbers on the companies you care about. Just click below to start.