"Street Critique"-Josh Peters, Equity Strategist at Morningstar
Wednesday, January 30, 2008PAUL KANGAS: With the Fed in a rate cutting cycle and stocks swimming in a sea of volatility, tonight's "Street Critique" guest says there are still some great opportunities to pick up solid income-paying stocks at bargain prices. He's Josh Peters, equity strategist at Morningstar and author of "The Ultimate Dividend Playbook." Josh welcome to NIGHTLY BUSINESS REPORT.
JOSH PETERS, EQUITY STRATEGIST & EDITOR, MORNINGSTAR: Thank you, Paul. Pleased to be with you.
KANGAS: You write Morningstar's monthly dividend investor newsletter. Tell me very briefly about your investing philosophy.
PETERS: When you look at the market and the way stock prices are going up and down, you want to get a good cash return from your portfolio. What dividends allow you to do is to get that return in cash directly from the source, the underlying corporate profits of the businesses that you own, much more reliable than capital gains and market prices.
KANGAS: Understood. How are the Fed's rate cuts though impacting that strategy?
PETERS: In fact, these rate cuts are making dividend-paying stocks even more attractive. Not only have the prices of a lot of higher-yielding stocks come down making their current yields even higher. But as interest rates have come down, investors have fewer alternatives to generate good income for their portfolio. You're seeing this big spread widen up that really creates a lot of opportunity when you can be confident that the dividend is safe and that it's going to grow over the long term.
KANGAS: You recently wrote about now is the time to get greedy when it comes to bank stocks. What's the philosophy behind that? What are they? What banks do you like?
PETERS: I think you want to start to get greedy when there is bad news because the bad news from just a couple of banks winds up pushing all of the stock prices down. My favorites are the ones that really aren't having serious problems related to what's going on in sub-prime mortgages and.
KANGAS: Let's have some names.
PETERS: Bank of America, terrific consumer and deposit franchise with a 6 percent yield.
KANGAS: How much?
PETERS: 6 percent, over 6 percent.
KANGAS: Go ahead.
PETERS: You can get yields in the 5 percent range from two south eastern regionals, BB&T (BBT) and Synovus (SNV). They don't have any sub- prime mortgage securities that you have to worry about. They're very solid businesses.
KANGAS: Let's have a look at Synovus, the closing today, $12.64. The yield is roughly what?
PETERS: In the mid 5 percent range.
KANGAS: OK. Where else are you seeing opportunities for strong dividend growth, Josh? PETERS: Well, I like a lot of the consumer and health care names right now. You have to be kind of picky because a lot of investors have already gotten defensive. They've already tried to move money into these areas, but Johnson & Johnson (JNJ) or a Cisco (CSCO) or a Diageo (DEO), these are the kinds of firms that are going to get through a recession and still be able to grow. And chances are they're still going to be able to increase their dividends at very good rates and get income growth out of it as well.
KANGAS: What dividends on average do those last three stocks yield?
PETERS: They're between the mid 2 and the mid 3 percent range. There are a lot of good opportunities in that yield range right now.
KANGAS: Josh, do you own or have any other disclosures to make regarding the stocks you've mentioned?
PETERS: Only one and that's BB&T and Synovus are both covered by my wife who is also a Morningstar senior bank analyst.
KANGAS: A little home research there. That's kind of nice, in-house. Josh, I want to thank you for being with us tonight.
PETERS: Thank you.
KANGAS: My guest, Josh Peters of Morningstar.
