Long-term interest rates continued to push higher over the
past couple weeks, as stronger domestic economic data has
led traders to believe that the Fed will begin to taper its
quantitative easing policy in the coming months.
The yield on the benchmark 10-year Treasury note has moved
up toward 2.85%, which creates increased competition for
dividend stocks. At the same time, the Dow Jones Select
Dividend Index (DVY:NYSE) -- which serves as the
benchmark for the model portfolio -- has dropped seven
Even so, we maintain that our strategy of focusing on
companies with consistent earnings and dividend growth and
solid balance sheets can continue to outperform the broader
universe on dividend-paying stocks, with less relative risk
than the broader stock market averages.
Along those lines, we will add a new name to the model
portfolio after you receive this issue. We will purchase an
$11,500 position in Sonoco Products (SON:NYSE), which
we will fund by our holdings in the DVY index. The size of
the new position is to ensure a relatively equal weight
among our positions.
The stock was recently trading around $39.78, which equates
to a yield of 3.1%. We have missed out qualifying for the
company's next quarterly dividend of $0.31 a share, payable
on Dec. 10, but we believe that management will boost its
payout for the 32nd consecutive year in April 2014.
Sonoco is a flexible packaging producer that focuses in both
plastic and carton products. Management exceeded consensus
third-quarter earnings expectations back in October, which
were led by 3% year-over-year revenue growth.
Since its earnings report, the company raised prices for its
by 4% in polystyrene and polyethylene packaging in November,
in addition to 15% in corrugate packaging, effective in
2014, passing along higher input costs to its customers.
Management also paid down $121 million of debt last month.
Following a 3% decline in 2012, Sunoco is set to grow
earnings 4% in 2013 and 9% in 2014. The company can cover
the current annual dividend of $1.24 a share more than 2x,
with expected 2014 earnings on $2.51 a share.
Management is hosting an analyst meeting in New York on Dec.
6 and also presenting at a Bank of America/Merrill Lynch
conference next week. We expect an upbeat presentation, as
the company is back on the path toward consistent earnings
With its improving financial metrics and upcoming potential
catalysts, we believe that Sonoco can deliver a double-digit
total return in 2014, even in the face of higher long-term
KLA-Tencor (KLAC:Nasdaq) said on Dec. 4 at a Credit
Suisse investment conference that a $100 million order
expected to close in the fiscal second quarter (ended
December) will be pushed into 2014. Even so, management
remains comfortable with its previous guidance for the
period, as they are calling for earnings of $0.67 to $0.87 a
share on $670 million to $730 million of revenue.
Despite the setback in this one deal, we believe our
investment thesis remains intact. The stock has pulled back
2% over the past couple of weeks and was recently changing
hands around $61.87. We maintain that KLA-Tencor is
attractive to hold for its 2.9% dividend yield.
Air Products (APD:NYSE) declared its next quarterly
dividend on $0.71 a share (2.7% yield) on Nov. 21. Investors
at the close of trading on Dec. 27 will qualify for the
payment on Feb. 10, 2014.
Campbell Soup (CPB:NYSE) announced its latest
quarterly dividend of $0.312 a share (3.1% yield) on Nov.
20. Shareholders at the close of trading on Jan. 2, 2014,
will qualify for the Jan. 27 payment.
David S. Peltier
We believe the telecommunications stock can deliver a double-digit total return in 2014 with less risk than the overall market.
Double-digit annual profit growth should drive another dividend boost for ABM Industries this month.
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.