Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

3 Post-Midterm Buys

By Contrarian Outlook (Brett Owens)ETFsNov 13, 2018 05:45AM ET
www.investing.com/analysis/3-postmidterm-buys-for-65-dividends-and-240-payout-growth-200358546
3 Post-Midterm Buys
By Contrarian Outlook (Brett Owens)   |  Nov 13, 2018 05:45AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Now that the election’s over, it’s time for us contrarians to get greedy!

And I’ve got just the thing: 3 hated buys we can use to rack up serious gains and dividends while the rest of the herd struggles to get its bearings.

Where do these 3 cash machines come from? The defense and infrastructure sectors.

Now you might see where I’m coming from on infrastructure. Probably the one thing Republicans and Democrats agree on is that our ramshackle roads, bridges and power plants need a lot of work.

More on this, including a rock-solid play for 6.5% dividends and “steady as she goes” upside, at the end of this article.

Before we get to that, though, let’s talk defense, a sector that might surprise you given that the media regularly rolls out stories about Democrats’ reluctance to goose the Pentagon budget.

Funny thing is, defense stocks crushed it during the Obama years, including from November 2008 to November 2010, when Democrats were elected to majorities in the House of Representatives and Senate, as well:

Defense Roars Under Obama …

Defense Picks
Defense Picks

And here’s what’s happened since Election Day 2016:

… And Trump

Defense Performance
Defense Performance

From this chart, you might be fooled into thinking defense stocks are too pricey now. And sure, some have gotten ahead of themselves. But the two I want to show you below are still bargains, giving us a rare second chance to jump in.

The Generals Always Get What They Want

If you’ve been watching the news (and who hasn’t?), you may have seen President Trump call for a 5% spending cut across all departments. But even if defense gets lumped into that, as Barron’s recently pointed out, only 21% of the department’s budget goes to buying weapons, so procurement could be spared.

In fact, I’ll go you one better: it will be spared. Because other countries (I’m looking at you, China) are always experimenting with new tech, like hypersonic weapons, and America will always have to respond.

2 Unloved Innovators

All of this is good news for Northrop Grumman (NYSE:NOC) and Raytheon (NYSE:RTN).

This pair aren’t your typical arms merchants, churning out old-school tanks, trucks and planes for Uncle Sam and his friends.

They’re basically tech stocks—but they’re actually cheaper than big tech names like, say, Alphabet (NASDAQ:GOOGL), with each trading just below 16-times forward earnings.

Why do I say they’re tech stocks? Take Northrop. Sure, it churns out military gear like the heavyweight A-10 Thunderbolt plane and the next-gen B-21 bomber. But it also stakes a big part of its business on things like drones for military and research purposes, space-launch systems and cybersecurity.

You may be wondering why I’m excited about 2 stocks with puny current yields around 1.7%. But as I’ve written before, if you’re investing for the long haul, it’s dividend growth that matters—as a surging payout is a critical share-price driver.

And these 2 sport dividend histories that would make your typical holder of, say, the SPDR S&P 500 ETF (NYSE:SPY) green with envy!

Financial Crisis Couldn’t Dent These Payouts

Northrop Grumman (blue) Vs. Raytheon
Northrop Grumman (blue) Vs. Raytheon

Thanks to this massive growth, if you’d bought Northrop 10 years ago, you’d be yielding a fat 12% on your initial buy today. Raytheon? A tidy 7.3%.

We can expect plenty more, even if defense spending flattens out for a bit. Northrop pays out just 39% of free cash flow (FCF) and 29% of earnings as dividends, with both well below my “safe zone” of around 50%. Raytheon’s payout growth is also locked in, at 53% of FCF and 39% of earnings.

Both firms also soundly beat expectations in the third quarter. And check out these sales and earnings trends:

Battle-Tested Profit Growers

Stock Performance
Stock Performance

Your next move? Grab these two “undercover” tech stocks now, before their prices race away.

Now Back to Infrastructure

When it comes to infrastructure, the one thing we don’t want to do is stake our nest egg on the popular names, because these stocks are some of the wildest you’ll find.

Take Caterpillar (NYSE:CAT), which may indeed benefit if Trump and the Democrats, er, hammer out an infrastructure plan. Trouble is, CAT boasts a 5-year “beta” of 1.6, meaning it’s 60% more volatile than the market!

Keep in mind that a stock with a beta of 1 largely moves in time with the market. Anything above is more volatile, below, less. (NOC and RTN, for their part, sport betas of 0.83 and 0.84, respectively).

Look at the wild ride CAT has taken its seasick investors on in the last year:

Popular Choice Gives Investors Motion Sickness

Caterpillar
Caterpillar

CAT buyers are taking on a lot of price heartburn for a measly 2.5% dividend!

Which brings me to the Reaves Utility Income Fund (NYSE:UTG), a more conservative, less volatile (beta: 0.45) and diversified way to invest in infrastructure.

The CEF focuses on traditional utilities and telecoms, with almost all of its portfolio in the US, though you do get some exposure to top-notch international companies, as well, such as dominant Canadian telco BCE Inc. (TO:BCE).

Top Holdings
Top Holdings

Source: CEFConnect.com

Each of these holdings is a cash cow that will keep dishing money to investors regardless of Washington politics. UTG pays a gaudy 6.5% today, pays dividends monthly and recently boosted its payout, too.

UTG’s Dividend Hat Trick

Distribution History
Distribution History

Source: CEFConnect.com

What’s more, UTG trades at a modest 4.3% discount to NAV (it traded at a premium as recently as August 2017). And its smooth ride up puts popular kid CAT to shame:

A Low-Drama Buy

Reaves Utility Income Fund
Reaves Utility Income Fund

The time make a move is now, while you can still get UTG for 96 cents on the dollar.

Think You Can’t Retire on Dividends Alone? It’s Easy. Here’s How.

If you want income from your portfolio now, the truth is, Raytheon and Northrop won’t help you much. Don’t get me wrong—they’re terrific companies, but you may need to wait 10 years (or more) for the payout on a buy you make today to reach 8% or higher.

UTG? It’ll give you a 6.5% dividend now, a more diversified portfolio and payout growth. That makes it a much better deal.

But we can go even further. I’m talking an 8% CASH dividend—enough for you to retire on dividends alone with a $500k nest egg.

And we won’t have to wait another minute to do it! We can tap this cash deluge right NOW. The key? The 6 breakthrough investments in my 8% “No-Withdrawal” Portfolio.

As the name suggests, these 6 buys hand you what few other investments can: a safe—and growing—8% dividend. It couldn’t be simpler: just swap out the stale Dividend Aristocrats in your portfolio for these 8%+ cash machines.

Imagine what that could mean to you: when you never have to sell a stock to generate cash, you can forget obscure concepts like beta ratings and ignore the markets entirely!

Because as long as your income stream is safe, who cares what Mr. Market gets up to on a daily basis?

Many folks know this is the way to invest for retirement. They just don’t know where to find the ironclad 8% payers to get themselves there.

Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."

3 Post-Midterm Buys
 

Related Articles

3 Post-Midterm Buys

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email