Companies like Microsoft and Intel are paying dividends too rich to ignore, says Charles Carlson in this exclusive interview with MoneyShow.com.
Charles, it's an honor to have you with us. You're the editor of the oldest running newsletter in American history, since 1946.
Right, 65 years, that's correct.
That's fantastic. You're also quite an authority in the investment landscape on the subject of high dividend-paying stocks, both because of the importance of dividends as a component of the total return and because of what investors in the demographics of today's investor is demanding in a very, very low yield world.
Tell us about what kind of yields you can get in today's dividend-paying stocks.
We're not necessarily a group that focuses on the highest yielding dividend stocks. We tend to prefer stocks where the yields are very competitive, but where you can get nice dividend growth as well as some appreciation; so we're looking at a total return package.
In that universe of stocks like that, a couple of ideas we like a great deal right now are two technology stocks, Intel (INTC) and Microsoft (MSFT). I know both stocks have not been the most dynamic stocks over the last ten years, but we think that's going to change.
I think there's going to be a shift. We're starting to see it already toward mega-cap dividend-paying stocks, which I think is really one of the true sweet spots in the market right now. You have a stock like Intel that yields almost 4%...It's getting some momentum and I still think it trades at a reasonable valuation.
Everything I just said for Intel applies to Microsoft too. Good yield. You can get a yield of 3% to 3.5%. Good dividend growth. You're going to see dividends increase at least 15% to 20% a year for probably the next five years for Microsoft, and a stock that's still valued very attractively. Those are the types of stocks where I think there is going to be opportunity, solid total return stocks.
That's terrific. Any more names?
Well, we like Abbott Laboratories (ABT), a pharmaceutical company which just announced that they plan to do a kind of a split-up into two companies. It pays a good dividend. Among pharmaceutical companies, they are growing pretty nicely.
In the utility sector, we like PPL (PPL). The utility stocks have gotten a lot of play here. We think there's still room for upside in that group...and you get a stock like PPL yielding in the 4% to 5% range—a good solid yield; probably twice the yield that you're going to get on a ten-year Treasury.
So your tax rate on dividends is still 15%. Do you expect any change there?
You know what? I don't. People may differ with me on that, but I think that's going to remain the case.
It expires at the end of next year, the 15%, but I think that is one of the advantages too. When you look at what people are getting on fixed income, which is next to nothing—plus they're paying taxes at an ordinary tax rate, versus dividend stocks where the maximum tax rate is going to be 15%—it just increases the appeal of dividend-paying stocks versus fixed-income investments in my opinion.
Very good. Any more names?
Let's see, a couple of more names. I think that we like UnitedHealthcare (UNH), which is an insurance company that pays a nice dividend.
In the water sector, we like Aqua America (WTR). Water is an interesting area to be. The stocks aren't necessarily dirt cheap, but I think there is room for growth there. Aqua America pays a nice dividend as well.
