7 Stocks That Pay Dad Back

7 Stocks That Pay Dad Back
By Selena Maranjian June 13, 2008 Comments (0)
1 Recommendation
Forget the golf clubs! We have some great investment ideas Foolishly wrapped up in this special series for Father’s Day.
Dad, remember way back when you and mom paid me an allowance? I loved watching my money grow ... and occasionally spending it on a $3.99 LP at Korvette's or a magazine. Now I think it's time I returned the favor. I'm offering you several stocks that will pay you an allowance.
You'll get that money in the form of dividends, which both of us increasingly appreciate. Years ago, we were entranced by high-flying stocks that often landed with a thud. But with healthy dividend payers, we can not only enjoy a steady (and often increasing) stream of income, but also expect some stock-price appreciation, as well. It's a tantalizing combination.
Indeed, as my colleague Rich Greifner has pointed out in his article, "The Secret of Dividends," more than 40% of the S&P 500's total return over the past 80 years has come not from rising share prices, but from dividend payments.
Dividends for DadHere are a few companies you might want to consider as investments:
Company
Recent dividend yield
3-year dividend growth rate
Recent P/E ratio
5-year average P/E ratio
General Electric (NYSE: GE)
4.1%
11.9%
13.4
19.8
Wells Fargo (NYSE: WFC)
4.8%
8.3%
11.2
14.2
United Parcel Service (NYSE: UPS)
2.6%
14.5%
151.5
23.5
Johnson & Johnson (NYSE: JNJ)
2.6%
14.0%
16.4
19.8
Kimberly-Clark (NYSE: KMB)
3.6%
9.8%
15.0
18.5
Procter & Gamble (NYSE: PG)
2.2%
11.1%
19.6
23.8
Paychex (Nasdaq: PAYX)
3.7%
18.9%
21.9
36.9
Data from Morningstar.
Who wouldn't want to hold General Electric shares? Despite its massive size, the company's revenue still rose nearly 6% last year. According to Yahoo! Finance, its net profit margin tops 12%, and its return on equity (ROE) is 19%. It also offers quite a bit of diversification, since it's involved in everything from jet engines to financial services to alternative energy. (And water processing, and broadcast television, and medical equipment, and....)
How much safer can a company seem than Procter & Gamble? Its brands, including Tide, Crest, Gillette, and more, are well-known worldwide. And while many financial giants are struggling these days, Wells Fargo is going strong, with even Warren Buffett investing in it. Its annual revenue is up about 35% over the past two years.
UPS might be a harder sell right now, with our economy sputtering and fuel costs soaring. But the company is enjoying solid growth in revenue from international operations, and the U.S. economy will pick up one of these days, too.
Johnson & Johnson needs little introduction, sporting a net profit margin of more than 18%, and ROE topping 25%. Its own investor relations department has noted the company's "75 consecutive years of sales increases; 24 consecutive years of adjusted earnings increases; and 46 consecutive years of dividend increases." Over the last 10 years, Johnson & Johnson stock generated an annualized return of almost 8% for investors, compared to just 3.5% for the S&P 500.
Kimberly-Clark may be less well-known for many investors, but it shouldn't be. Its net profit margin is almost 10%, and its ROE tops 30%. Revenue rose 9% last year for its stable of familiar brands, including Kleenex, Kotex, and Huggies.
Finally, Paychex is unknown to many, but it processes payroll and performs many other critical tasks for thousands of companies (perhaps including your own employer). Its revenue has risen 30% over the past two years, while its net margin tops 25% and its ROE tops 35%.
Dad, you can learn more about successful investing and about dividend payers in these articles:
How to Shoot Dividend Ducks in a Barrel
How to Survive This Crazy Market
Stocks That Pay You Back

Lampert Puts Money On Housing Rebound

Lampert Puts Money On Housing Rebound
Stakes Being Taken In Battered Builders, Lenders and Retailer
By GARY MCWILLIAMSJune 12, 2008
Billionaire hedge-fund manager Edward S. Lampert is placing new bets on a U.S. housing recovery, buying stakes in beaten-up home builders, mortgage lenders and a home-improvement retailer.
Mr. Lampert's ESL Investments Inc., which owns half of department-store giant Sears Holdings Corp. and 40% of car retailer AutoNation Inc., has previously focused with mixed success on retail and bank stocks.
Recently, the Greenwich, Conn., hedge fund, which controls investments it valued at about $11.6 billion in its most recent government financial report, began picking up shares in hard-hit housing-related stocks. ESL acquired small stakes in U.S. home builders Centex Corp. and KB Home, according to its latest Securities and Exchange Commission filings. At recent prices, the stakes in the two home builders are valued at $10.4 million and $10.8 million, respectively.
ESL also is tip-toeing into mortgage origination and servicing, acquiring about four million shares of CIT Group Inc., a struggling subprime home and commercial lender, as well as 1.4 million shares of PHH Corp., a mortgage originator and mortgage-service company. The shares are valued currently at about $35.5 million and $25.2 million, respectively. ESL spokesman Steve Lipin declined to comment on the investments.
Mr. Lampert's purchases come as some analysts think the housing market's decline may be nearing an end. Investment adviser Sanford C. Bernstein & Co. this week estimated the housing correction will "begin to bottom within the next several months, which should lead to declining inventories and, eventually, stabilizing prices."
In another bet on a housing turnaround, Mr. Lampert this spring increased his stake in home-improvement retailer Home Depot Inc. ESL holds about 22.7 million shares valued at $590 million, up from 16.7 million shares last year.
Earlier this decade, Mr. Lampert acquired car-parts retailer AutoZone Inc. and discount chain Kmart Corp., turning the two around for big gains. He has been less successful with a big investment in Citigroup Inc. that came before the full force of the subprime-loan debacle. His purchases of Home Depot also have looked premature. He acquired his initial shares last this past fall when the stock was trading at between $32 and $37 a share; shares currently trade around $26. Meanwhile, the total value of his equity portfolio has tumbled to about $10.04 billion from about $11.6 billion reported at the end of the first quarter.
ESL acquired its shares in mortgage company PHH in September and only recently disclosed the investment. ESL is one of a handful of companies that have permission from the SEC to temporarily delay releasing details of some investments.
The housing investments are true to Mr. Lampert's interest in out-of-favor companies and industries and reflect his propensity to acquire shares in companies that have seen their shares tumble after buyouts collapsed.