By Chloe Lutts
Editor of Dick Davis Digests
Stock Market Crash Course Video
Best Dividend Picks of 2012
With Christmas just a day away, it looks like all systems go for the market into the new year. The next couple holiday weeks will probably be quiet, and we may see a pause in the rally as the market digests its overbought position, but the trends are all bullish, signaling more gains ahead.
I few weeks ago, I announced the best-performing Investment Digest Top Picks from 2012 to our Investment of the Week readers. Today, I’m sharing the winning Dividend Digest selections.
But since most of our Digest subscribers are looking for income when they buy Dividend Digest recommendations, the income Top Picks’ price appreciation is less important than it is for the Investment Digest picks. So I calculate the Dividend Digest Top Picks’ performance a little differently, adding in dividends to find the investment’s total return (price appreciation + dividends paid) over the past year.
With that said, the best-performing Dividend Digest Top Pick claimed such a runaway victory that it beat all the other picks based on both price appreciation and total return.
With a total return of 97%, the top honor goes to Marathon Petroleum Corp. (MPC), recommended by Joe Cotton of Cotton’s Technically Speaking. A petroleum refiner, transporter and marketer, MPC caught Cotton’s eye at the beginning of the year because it looked undervalued. In January, he wrote: “The stock was trading as high as $45 per share in August of this year, and it is now selling at a P/E ratio of only 5.99, based on 2012 earnings estimates of $5.45 per share. We think Marathon Petroleum is a bargain at this price, and we believe the stock will soon begin moving up.” He was right, and in addition to appreciating 93%, MPC paid $1.20 in dividends this year, for a yield on cost (the price at recommendation) of 3.77%.
The Marathon Petroleum was the top performer at mid-year as well. Yet, the stock’s best gains came in the second half of the year! And, it raised its dividend in August, just after our mid-year update.
I’ll say it again: buy the best-performing Top Picks at mid-year.
Now on to the rest of the best.
In second place is a familiar name (she also made the Investment Digest top five): Vivian Lewis of Global Investing, with another RBS preferred. For income, she recommended the RBS preferred ‘F’ series (RBS-F), which was yielding 10% at the beginning of the year thanks to a variety of concerns about RBS and other European banks. The preferred share appreciated significantly this year as those concerns were replaced by reality (just as Lewis predicted.) With dividends, RBS-F delivered January buyers a total return of 40% this year. (It can be tough to find accurate distribution information about preferred stocks on regular stock quote services, but the RBS-F has a coupon rate of 7.65% and pays an annual dividend of about $1.91 in quarterly installments.)
The bronze medal goes to Nate Pile, editor of Nate’s Notes, who chose the Hambrecht & Quist Life Sciences Fund (HQL) as his top income pick for a second year in a row. HQL is a closed-end fund that invests in life sciences companies. The income potential arises from the fund’s policy of paying out 2% of its NAV (net asset value) in dividends every quarter. So it’s a growth and income story, like MPC. With both price appreciation and dividends contributing, HQL delivered a total return of about 30% this year.
Hot on the heels of HQL, with a total return of 28%, is fourth-place runner-up McCormick (MKC), recommended by Ian Wyatt’s High-Yield Wealth Editor Stephen Mauzy. At the beginning of the year, Mauzy wrote, “I like dividend growers, and I like dividend growers that rule their market. McCormick & Co. grows its dividend and rules its market–spices and seasonings–with its eponymous McCormick, Lawry’s, Old Bay and Zatarain brands. Combined, these brands command 40%-60% of the markets in which they compete. McCormick’s revenue growth has averaged 5.4% over the past 10 years. Thanks to an aggressive expansion into developing markets, that pace has accelerated to 8.7% this year. As revenue grows, earnings per share tend to grow at an even faster clip, averaging 11% annually for the past 10 years. I expect this trend of efficient growth to continue into the relevant future. Revenue is expected to grow 10% to $4.05 billion in 2012, while EPS is expected to grow 13% to $3.15, which puts the forward price-to-earnings multiple at 15–the low side of the five-year average of 18. My 12-month price target is $56 per share, a 17% premium to the market price. Add in the 2.6% yield from the recently raised dividend and McCormick has the potential to generate a 20% total return for investors in 2012.”
His prediction turned out to be very close but even a little conservative, as MKC delivered an almost 30% total return this year. Plus, the company just raised its dividend again, to 34 cents per quarter for the next year.
Finally, our top five is rounded out by C&F Financial Corp. (CFFI), a bank stock recommended by Douglas Hughes of Hughes Investment Management. CFFI made substantially all of its gains in the beginning of the year, but its early appreciation and generous dividend payments (it just increased its dividend in November, plus, it moved its January 1 payment into December to avoid higher taxes in 2013) push it into the top five with a total return of 24%.
Wishing you success in your investing and beyond,
Chloe Lutts, Editor of Dick Davis Digests
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