If only 5%-10% of your portfolio is allocated to emerging markets, you probably should hold stocks from the U.S. and other developed nations as well. In order to minimize exposure to a freefall like the one we all experienced in 2008, you might want to include dividend-paying stocks. â€śLook for companies that have enough net income to easily cover the interest on their debt and the dividends they pay to shareholders,â€ť says Eugene Profit, who heads Profit Investment Management (No. 15 on the BE Asset Managers list with $900 million in assets under management). â€śThose companies have strong fundamentals so they are likely to hold up well in any type of economy.â€ť
Whatâ€™s more, current law calls for stock dividends to be taxed no higher than 15%, through 2010. (Bond interest, on the other hand, may be taxed as high as 35%.) Among Profitâ€™s current holdings, he is especially upbeat on these dividend-paying stocks:
Verizon (VZ): This telecom giant, the largest wireless carrier in the U.S., now has a dividend yield over 6%. â€śThe company may get the rights to sell [Appleâ€™s] iPhone in the next year or two,â€ť Profit says. â€śIn the meantime, the high dividend means investors are being well-paid to wait for news that might boost its stock price.â€ť
General Electric (GE): This company has been included in the financial sector because of its GE Capital subsidiary. As a result, its stock price has suffered in the credit crisis. â€śGE really is an industrial company, not a bank,â€ť says Profit. â€śIt is well-positioned to increase earnings as the economy recovers.â€ť Meanwhile, it offers a well-covered 5% dividend yield.
United Parcel Service (UPS): Profit puts the current dividend yield at 3.25%, which is as high or higher than youâ€™d get from most bank accounts or Treasury bonds. â€śIn addition,â€ť Profit says, â€śUPS has the highest profit margins of any major company in the transportation industry. So investors might see its stock price move up when the economy improves.â€ť
Home Depot (HD): The home improvement retailer has a current yield of 3.40%. â€śShelves look empty at Home Depot these days as homeowners launch do-it-yourself projects and hire contractors, either to help sell their homes or make them more comfortable because theyâ€™ll be there for awhile. Also, management is making an effort to be more customer-friendly,â€ť says Profit of the company whose current dividend yield is around 3.4%.
Johnson & Johnson (JNJ): The healthcare company has a current yield of 3.2%. Profit admits that healthcare stocks have been up-and-down with all the talk of federal healthcare reform. â€śOnce thatâ€™s resolved,â€ť he says, â€śthe basic fundamentals will emerge: an aging nation and an aging world mean more demand for healthcare.â€ť
Overall, Profit suggests mixing high-dividend stocks with growth-oriented issues that pay little or no dividends. If you are getting an overall 2% to 3% yield from the stocks in your portfolio, you might have current income, upside potential, and downside protection if stocks slump again.
Wealth For Life Principles
1. I Will Live Within My Means
2. I Will Maximize My Income Potential Through Education and Training
3. I Will Effectively Manage My Budget, Credit, Debt, and Tax Obligations
4. I Will Save At Least 10% of My Income
5. I Will Use Homeownership as a Foundation For Building Wealth
6. I Will Devise An Investment Plan For My Retirement Needs And Childrensâ€™ Education
7. I Will Ensure That My Entire Family Adheres To Sensible Money Management Principles
8. I Will Support the Creation and Growth of Minority-Owned Businesses
9. I Will Guarantee My Wealth Is Passed On To Future Generations Through Proper Insurance And Estate Planning
10. I Will Strengthen My Community Through Philanthropy