I realize I’ve been abusing you with a barrage of pieces on gold lately, so I’m going to switch gears to a very exciting opportunity in an ignored and yet very attractive sector of the markets.
It’s one of those rare times in the market when some stocks are so incredibly cheap, and have such attractive dividends, that you simply must own them.
It’s a value-investor’s dream to own a healthy blue-chip stock at less than 10 times earnings.
Throw on a dividend yield of more than 4% (which is more than you’ll currently get for buying 30 year Treasury bonds) and it should be an automatic purchase.
And if the company in question is a top oil company with diversified oil production – you should be buying.
When I was writing last week about getting your shopping list ready, I was talking about companies like this one.
I’m talking about ConocoPhillips (NYSE: COP).
And I’ve recommended buying shares of COP before. And, admittedly, if you bought this stock when I first recommended it in December of 2010, you’d be sitting on a small paper loss, but with the dividend, you’d actually be close to even.
Today, you can buy COP for less than 9-times trailing earnings – and that includes a 4.3% dividend yield.
When you have that 4.3% dividend – and there’s potential for dividend growth on an annual, if not quarterly basis, (check out ConocoPhillips’ entire dividend history) then you don’t mind the fluctuations of the stock price as much.
If COP grows its dividend at the same average pace that it has over the past 7 years (since the last stock split), the dividend will double from your initial purchase every 7 years.
So a 4.3% dividend will become a 8.6% by 2018. And it will double again to 17.2% by 2025.
Okay, so maybe your investment horizon doesn’t go out that far.
But with that kind of dividend growth, why would you ever want to sell? The only reason I can see for selling would be if the stock skyrockets or the dividend gets cut.
I certainly wouldn’t be selling COP today.
I think you should be buying.
Pay attention to the rate of dividend growth of companies – not just how big their dividends are today.
Think of these companies that grow their dividends as generous bosses who give you a big raise every year. You wouldn’t leave that kind of company unless something really spectacular came along – and I don’t think you should ignore COP at this yield either.
Again – in this volatile market, you have to keep your eyes on the ball. The market as a whole is risky, but when you can buy a blue-chip like COP at such a discount AND with a generous dividend yield – it’s not time to second guess yourself.
Keep your elephant guns loaded, because I don’t think we’re quite through this mess in the market just yet.