Once again, I've got a little cash burning a hole in my pocket. I figured this time, instead of gradually blowing it all on pizza and beer, I'd put it to work by using it to add some more high-quality dividends to my portfolio. Beginning as soon as the Fool's disclosure rules allow, I plan to invest $5,000 of my own money into the following five companies.
Company | Projected Yield | Payout Ratio |
|---|---|---|
| Johnson & Johnson | 3.5% | 54% |
| Kennametal | 1.3% | 15% |
| Microsoft | 2.7% | 25% |
| Intel | 3.2% | 32% |
| Annaly Capital | 13.8% | 124% |
Source: Yahoo! Finance.
I almost picked Procter & Gamble over Johnson & Johnson as the last piece of my dividend portfolio's foundation, but my dividend portfolio is already loaded with consumer goods. Although J&J is probably best-known for its over-the-counter products, the company actually draws most of its revenues from the sales of pharmaceuticals and medical devices. This built-in diversity makes Johnson & Johnson, as Fool analyst James Early has said before, essentially a health-care mutual fund in a stock. You get exposure to a wide swath of the health-care industry, but without the fees. What's more, the stock is somewhat undervalued at the moment, making it a pretty good time to buy.
Although I'm normally looking for dividend yields approaching 3%, I'm making an exception for Kennametal because it's the kind of business I find almost irresistible. The company makes high-end cutting tools -- things like saw blades and drill bits -- used in metalworking, mining, and construction. The beauty of this business is that these parts have limited lifespans and require regular replacement. In order to ensure that these customers come back to Kennametal, the company keeps a crew of 700 scientists and engineers on staff to constantly improve cutting technology.
If you had told me five years ago that I'd be investing in Microsoft today, I probably would have cranked up my iPod and chuckled as I walked away. However, in the past year, I've become an accidental Microsoft bull. It started when I began reading glowing reviews of Windows Phone Mango over the summer. After that, the more I read, the more I found to get excited about. Windows 8, its cloud platform Azure, and Office 365 will help the company transition into the post-PC world. Meanwhile, the Xbox 360 has evolved from a gaming console into a powerful media center. In short, I think Microsoft is on the verge of becoming great again.
Fellow Fool Alex Planes recently picked Intel as a core stock for your portfolio, and I obviously agree. It's true that the company has fallen behind ARM Holdings' mobile revolution. However, I think the mobile market is still relatively young and that Intel will eventually gain a foothold. Even if it continues to struggle in mobile, the company can benefit from the infrastructure build-out required to support those devices. Additionally, the company's latest earning release has shown that the company still has room to grow in emerging markets.
Finally, I'm adding Annaly to my portfolio because, as Fool analyst Jim Royal previously noted, the company is one of the longest-tenured mortgage REITs in the market, and has a history of growing book value in good times and bad. As it happens, the conditions are currently in the company's favor. The Federal Reserve's recent pledge to keep interest rates near zero through 2014 should help Annaly maintain its dividend spread -- and by extension its dividend -- for the time being. The company's interest rate exposure means I have to watch the company more closely than I would Johnson & Johnson, but I think that's a fair trade-off for a double-digit yield.
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