2 Primo Dividend Stocks to Buy
January 05, 2011 – by Richard Band
Personally, I’ve made a vow to myself that I won’t buy any stocks in 2011 that don’t pay at least some kind of dividend. These are the best stock picks. And two of my favorite dividend stocks right now are McDonald’s (NYSE: MCD) and Invesco Mortgage Capital (NYSE: IVR), and I’ll tell you why.
But first, the Federal Reserve says it’s going to press on with its $600 billion bond-buying program. Isn’t that nice? Wall Street seems to think so. After turning skittish around midday Tuesday, stock traders plucked up their courage and, at the close, drove the Dow back up near its best levels of the session.
This is impressive action, particularly coming on the heels of Monday’s spirited New Year’s rally. The market is still very overextended in a short-term sense, but the extraordinary resilience we’re seeing implies that any pullbacks this month are likely to be shallow and short-lived.
My basic roadmap for 2011 calls for two or three strong quarters in the stock market as investors anticipate a gradually improving economy. Late in the year, though, I think the tone will change. People will begin to worry about the consequences of all this “stimulus,” and the battle lines for the 2012 presidential election will start to form.
Since it’s impossible to know, in advance, exactly when the bloom will come off the rose, I recommend trying to collect as much of your return as you can up front. That means focusing on stocks that deliver a generous dividend here and now.
I’m Lovin’ This Dividend Stock
I’m especially keen right now on McDonald’s (NYSE: MCD). Some on the Street are pooh-poohing Mickey D’s in the belief that rising commodity prices will pinch the hamburger chain’s profit margins.
Undoubtedly, that’s a near-term risk. But the naysayers forget that MCD has faced rising prices for bread, meat, vegetables and fuel for most of the past decade. Sooner or later, McDonald’s has always managed to pass costs through to the customer. Why should it be any different now?
At Tuesday’s close, MCD is yielding 3.3%. Put another way, a dollar invested in the Golden Arches will churn out 75% more income, immediately, than a buck placed in the S&P 500 index. I’ll go with Ronald McDonald, thank you! Pay up to $77.
Lofty Dividend From a Real Estate Trust
Aggressive investors might take a flyer on real estate trust Invesco Mortgage Capital (NYSE: IVR). Based on the trust’s four most recent quarterly dividends, IVR is yielding a cool 16.2%.
This isn’t a freebie — remember, housing continues to be the most troubled sector of the U.S. economy, with one homeowner in five owing more on their mortgage than the house is worth.
Nonetheless, IVR appears to be doing a good job of selecting mortgages with a relatively low risk of default. I think the trust will be able to maintain its lofty dividend this year, and possibly even increase it a tad. Buy IVR at $22 or less.