Never has the opportunity been better to appreciate the value of big boring stocks. 2009 was good to many, but it was especially good to smaller and often less financially sound companies, which benefited from a rising tide. As a result, names of companies that your grandpa may know very well, look to offer some very attractive returns relative to the risk involved. While 20% annual returns may not be likely, these names look like excellent candidates to provide 10-12% total returns over the next few years. Any investor who would not take such numbers is playing an unrealistic game.
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Ignore at Your Peril
AT&T (NYSE:T) currently trades for $25, sports a P/E ratio of 12 and pays a super-sized 6.4% dividend yield. Along with Verizon Communications (NYSE: VZ) which is the majority owner of Verizon Wireless, they essentially dominate the wireless market. This is a huge competitive advantage as the world relies more on wireless devices than the traditional wireline phones of old. Verizon also yields 6% but trades at 24-times earnings. Indeed a higher multiple for VZ may be warranted since Verizon Wireless is the largest mobile phone company in the U.S. Still, AT&T has solidified its role in the market along with Verizon. If AT&T shares appreciate 2% a year, in line with U.S. GDP, the total return will exceed 8%. And any risk of a share price decline is mitigated by the attractive dividend. (For more, see Competitive Advantage Counts.)
The Real Thing
The Coca-Cola Company (NYSE:KO), one of Warren Buffett's favorite stocks, doesn't look that exciting until you consider the future growth that exists outside of the U.S. China and India combined are like the equivalent of seven United States. The company's recent $12 billion deal to buy back the bulk of its largest bottling business, Coca-Cola Enterprises (NYSE:CCE), while likely to hurt margins, will give the company a fully integrated supply chain which Coke will surely use to its advantage. Shares yield 3.2% and trade at 18 times earnings. Again don't expect super sized returns, but its a quality name with an attractive dividend with above average growth potential.
Sometimes Bigger Is Better
You won't make quick money buying the boring stocks, but you probably won't lose your shirt either. Investing is not a get rich quick discipline, but one that requires patience and buying good things at sensible prices. (For more, see The Successful Investment Journey.)
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