Equity investors are enjoying very nice gains in 2013. So far the S&P 500 is up 26.6%, the best performance since 1998. But the story is very different when UBS looked at the three highest yielding segments of the market — utilities, telecom and real estate investment trusts. Telecom (up 6%) and utilities (up 9%) have lagged significantly, while REITs have actually declined by more than 1%.
The strategy at UBS for 2014 and beyond is to stay with its dividend growth strategy. While the recent underperformance of high dividend yielding stocks has unwound some of the extreme overvaluation, this segment is still not even back to average valuations relative to the market or to dividend growth stocks. Dividend growth stocks are generally more economically sensitive than high dividend yield stocks, and the benefits of improving growth prospects should outweigh the headwind of higher interest rates.
Here are the top names to buy for 2014 and a new addition to the list.
Microsoft Corp. (NASDAQ: MSFT) is a new addition to the Dividend Ruler list. With sales of the Xbox One exploding, and a new CEO headed to the firm next year, 2014 could be a pivotal year for the software giant. The UBS analysts also feel that Microsoft stands to benefit from a pickup in tech spending next year. Plus tech remains one of their favorite sectors in the market. Investors are paid a very solid 3% dividend. The UBS price target for the stock is $40. The Thomson/First Call estimate is lower at $36. Microsoft closed Monday at $38.70.
Boeing Co. (NYSE: BA) remain a top pick at UBS for 2014. States from around the country are giving the company tremendous deals and tax incentives to build the 777X in their backyards. This search for a home is also expected to give the company some leverage in negotiations with unions in Washington. Investors are paid a 1.4% dividend. The UBS price target is posted at $144, while the consensus is at $145. Boeing closed Monday at $134.68.
Coca-Cola Co. (NYSE: KO) is one of the world’s most recognized brands. By 2020, the company hopes to double the amount of Coca-Cola beverages consumed around the world and double system revenue in that time frame. With a large portfolio of products, the future is bright for the iconic American beverage maker. Investors are paid a 2.8% dividend. The UBS price target for the stock rests at $44. The consensus is at $44.50. Coke closed on Monday at $40.40.
Colgate-Palmolive Co. (NYSE: CL) is another top consumer staples name to make the Dividend Rulers list of 2014. Colgate sells its products in more than 200 countries and makes more than 75% of its revenue outside the United States, which provides geographic diversification and growth opportunities in emerging markets for the company. This diversity, matched with a huge list of consumer products, keeps revenues and dividends growing. Investors are paid a 2.1% dividend. The UBS price target for the stock is $65, and the consensus target is posted at $68. Colgate closed Monday at $65.69.
Emerson Electric Co. (NYSE: EMR) is another top name to buy that the UBS analysts feel will be a beneficiary of an upturn in capital spending in 2014. The company boasts a solid balance sheet with a tiny 0.5 debt-to-equity ratio. Plus the dividend is well covered and was recently increased. Investors now receive a 2.5% dividend. The UBS target for the stock is $74, and the consensus is at $68.50. Emerson closed Monday at $67.64.
Medtronic Inc. (NYSE: MDT) has had a solid year in the medical devices sector, despite the impending 2.3% tax in the Affordable Care Act. With a wide range of products and growing international sales, Medtronic is a solid portfolio addition. Investors receive a 1.9% dividend. The UBS price objective for the stock is $64. The consensus target is at $63. Medtronic closed Monday at $57.87.
Nordstrom Inc. (NYSE: JWN) is a nationally known luxury retailer with a reputation for serving the well-heeled. That clientele helped support sales at its stores despite recessionary headwinds over the past five years. As a result, shares in Nordstrom have marched higher in all 10 of the past 10 years, generating an impressive average and median return of 11.52% and 10.89%, respectively. Investors are paid a 1.9% dividend. The UBS target for the stock is $73, and the consensus target is $67. Nordstrom closed Monday at $60.70.
United Technologies Corp. (NYSE: UTX) is a top industrial name to buy at UBS. United Technologies provides high technology products and services to aerospace industries and building systems worldwide. Its segments are UTC Climate, Otis, Controls & Security, UTC Aerospace Systems, Pratt & Whitney and Sikorsky. Investors receive a 2.1% dividend. The UBS target for the stock is posted at $122, and the consensus figure is $120. United Technologies closed Monday at $111.18.
After a spectacular year like 2013, investors need to be wary of a correction. We have advised readers to carefully select their entry point on new stock selections. The UBS Dividend Ruler stocks provide solid growth potential with solid dividend growth. If we do experience a sizable correction, they will not be shellacked nearly as bad as momentum stocks will.