Just because the economy is growing does not mean investors should abandon high-paying dividend stocks in favor of growth names, says Oliver Pursche, co-portfolio manager of GMG Defensive Beta Fund (MPDAX).
"No one is saying you shouldn't own growth stocks. The point is that dividends are a key component of total return, so investing in high-quality, high dividend paying stocks that also have growth characteristics should do very well in 2012, just like it did in 2011," says Pursche.
The $20 million fund, which launched in August 2009, has dropped 3.4% over the past 12 months, ranking it in the 66th percentile of Morningstar's (MORN) multi-alternative investment category.
Pursche specifically points to McDonald's (MCD) as a company that fits his growth plus dividend criteria, as the fast-food purveyor continues to expand internationally without skimping on its dividend, now yielding 2.8%. The company's stock is up more than 35% in the past year, compared with domestically oriented Wendy's (WEN), for example, which is up only 2% and yields 1.5%. And Pursche sees more room for Mickey D's to grow in 2012 even with a slowing Europe."They are ramping up revenues, store sales and everything else a growth business needs to accelerate. So it's a great example of a company that's exhibiting all of the qualities of a great growth stocks but has high yields and a strong balance sheet to support it," says Pursche. Another Dow stock that is one of Pursche's prime picks is chipmaker Intel (INTC), which soared 24% over the past year and is now yielding 3.3%. Not bad compared to competitors AMD (AMD) and Texas Instruments (TXN), which have fallen 38% and 8% over the same period. "Intel is best of breed. It has a very strong balance sheet, high credit quality, good growth prospects and an attractive yield over 3% so it's giving investors the best of both worlds," says Pursche. Finally, in the energy sector, Pursche likes Royal Dutch Shell (RDS-A), which yields 4.6%, as an alternative to American-based oil majors Exxon Mobil (XOM) or Chevron (CVX), which yield 2.2% and 3% respectively. "When you look at Royal Dutch's balance sheet and its business model, it's not much different than Exxon Mobil, however, since it's based in Europe, it's gotten beaten up a little more, so you are getting a lot more yield and you should take advantage of that as an investor," says Pursche.
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