News / Business / Columnists

Berko: Safe to invest in these tried-and-true companies

By Malcolm Berko

Published: January 21, 2018, 6:00am

Dear Mr. Berko: I am very nervous about the stock market and have been selling my weak stocks — those that have weak financial statements and those I don’t think will be able to keep their profit momentum during a big downturn. For example, I’m selling Ford and General Motors, my airline stocks, some of my real estate investment trusts, two restaurant stocks, all of my small telecommunications stocks, two media stocks, insurance stocks, bank stocks, and mortgage issues. But I want to remain in the market with stocks rated A++, because they have the highest financial strength and, though they may also fall in price, they will continue their dividends and recover well when the market comes back. What stocks would you recommend? I have $84,000 to invest.

— H.K., Kankakee, Ill.

Dear H.K.: The designation A++, for the few who don’t know, is Value Line’s top safety rating. It tells us that the financial strength of a company is among the best of the 1,700 companies followed by Value Line. Value Line’s ratings are measured by companies’ balance sheets and financial ratios and by the stability of their stock prices over the past five years. Value Line also considers business risk, the level and direction of profits, cash flow, earned returns, cash on hand, and the size of a company. But be mindful that the Value Line safety rating is a quality rank and not a performance rank. Please read that sentence again.

Less than 5 percent of Value Line stocks have the highest rating. Here are eight stocks that are rated A++ by Value Line, each yielding 3 percent or higher and having a long-term history of increasing dividends.

Everyone knows IBM (IBM-$164) as a worldwide supplier of technology, business services and software systems. IBM pays a $6 dividend and yields 3.6 percent. A dozen years ago, IBM was $80, and the dividend was 78 cents. Wall Streets is bullish on IBM’s earnings and dividends for the coming years.

Qualcomm (QCOM-$68) designs and markets integrated circuits used in voice and data communications, and the dividend, which is now $2.28 and yields 3.55 percent, has increased from 9 cents in 2003, when the stock was trading in the high $20s. QCOM’s merger talks with Broadcom are contentious, and some think it won’t happen. If it doesn’t, the Street thinks good things are in store for QCOM in 2018.

AT&T (T-$36.50) provides communication, entertainment and internet services to businesses around the world. The $2 dividend yields 5.3 percent and has increased each year since the Lord’s dog was a puppy. Both revenues and earnings should increase in 2018.

Pfizer (PFE-$36.40) sells drugs, lots of drugs. In fact, PFE sold $53 billion worth of drugs in 2017. Drugs such as Prevnar 13, Enbrel, Lyrica and Lipitor have enabled PFE to raise its earnings yearly and have enough money to spend hundreds of millions on TV advertising. The current $1.36 dividend yields 3.7 percent and should be increased in 2018.

Paychex (PAYX-$67) is a national provider of affordable full-service payroll services, as well as human resources services. PAYX’s $2 dividend yields 3 percent. Net profit margins are 26 percent, and return on equity is 43 percent. Expect continued earnings and dividend growth.

Merck & Co. (MRK-$62.52) is a $40 billion drug company that has an impressively fecund drug pipeline, which will stand it in good stead over the coming dozen years. MRK’s $1.92 dividend yields 3.4 percent, and profits and dividends should increase in 2018.

Coca-Cola (KO-$46) is a household name, Warren Buffett’s favorite drink and among his favorite stocks. His holding company, Berkshire Hathaway, has owned the stock for over 35 years. The $1.48 dividend yields 3.2 percent and should be raised again this year.

Procter & Gamble (PG-$90) sells a huge range of consumer products, from baby care to health care to beauty care. The $2.76 dividend yields 3 percent. The Street expects excellent growth this year and in 2019.

Invest $10,000 in each of those stocks, which will produce a 3.3 percent current return. Let’s hope that will give you the protection you want and a handsome yield in this market.

Related Stories