Mega Caps: These Dominating Giants Are Solid Portfolio Candidates

Many mega caps offer big dividends. Does this 5.2% yield interest you?

Mar 14, 2014 at 2:58PM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some mega caps -- stocks with massive market capitalizations -- to your portfolio but don't have the time or expertise to hand-pick a few, the Vanguard Mega Cap 300 Value Index ETF (NYSEMKT:MGV) could save you a lot of trouble. Instead of trying to figure out which stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on mega caps, sports a tiny expense ratio -- an annual fee -- of 0.11%. It also offers a dividend, recently yielding nearly 2.3%.

This mega-cap ETF has lagged the S&P 500 over the past three and five years, but over the past year, it has outperformed its large-cap value category. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why mega caps?
Large companies can add some ballast to your collection. The biggest -- i.e., mega caps -- may not grow as briskly as their smaller counterparts, but having reached their current size, they likely have some strong assets and features. And some can grow quite briskly, too.

More than a handful of mega caps had strong performances over the past year. Bristol-Myers Squibb Company's (NYSE:BMY) stock, for example, has soared 45% over the past year. The company has been focusing more on specialized, niche drugs lately and less on formulas for widespread conditions. It's also shedding businesses where it sees slower growth or less profitability, such as its stake in a diabetes joint venture. Bristol-Myers Squibb has new formulas in its pipeline, targeting cancers and viruses, and has particular strength in immuno-oncology. It recently got FDA approval for its body fat disorder drug, Myalept. Bristol-Myers Squibb stock yields 2.6%.

Occidental Petroleum Corporation (NYSE:OXY) gained 17%. The oil company is spinning off its California assets and will focus more on operations in the Permian Basin, where it has been the largest producer. Its efficiency has improved substantially there thanks to advances in fracking technology. Occidental Petroleum stock offers a 3% yield.

Other mega caps didn't do quite as well over the last year, but could see their fortunes change in the coming years. General Electric Company (NYSE:GE), up 11% over the past year, has been transforming itself lately, becoming much more of an energy company, with oil and gas now its fourth-largest revenue generator. Part of General Electric's transformation involves spinning off its sizable retail finance business. GE's fourth quarter featured revenue up 3% over the year-ago quarter, earnings per share up 20%, and its order backlog growing by 8% to a record $244 billion. The company's CEO buying millions of dollars worth of shares is appealing, too. GE stock yields 3.4%.

Domestic tobacco titan Altria Group (NYSE:MO), up 12%, faces headwinds such as rising taxes, regulations, competition from discount cigarettes, a shrinking smoker base, and even counterfeit cigarettes. Bulls are hopeful about its move into electronic cigarettes (one analyst even sees them eclipsing regular cigarettes within a decade) -- but the FDA might regulate those, too. Altria's fourth-quarter results were disappointing, with Marlboro volume shrinking by 5.7% over year-earlier levels. Still, Altria offers a hefty dividend yield of 5.2%, along with substantial free cash flow to support it. That's a compelling income stream.

The big picture
If you're interested in adding some mega caps to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

More from The Motley Fool
The mega caps above aren't your only path to portfolio growth. Motley Fool co-founder David Gardner, whose growth stock newsletter has been rated No. 1 in the world, has a unique strategy for uncovering wealth-changing stock picks.
 In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Selena Maranjian, whom you can follow on Twitter, owns shares of General Electric, as does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information