With the fear of higher rates weighing on many of the bond proxy sectors like telecom, real estate investment trusts and utilities, it is important to remember that dividends are a critical part of total return and can be the key for investment success. Again total return is the combined increase in a stock’s value plus dividends. For instance, if you buy a stock at $20 that pays a 3% dividend, and it goes up to $22 in a year, your total return is 13% — 10% for the increase in stock price and 3% for the dividends paid.
The UBS Dividend Ruler portfolio continues to outperform the overall market, and we continue to think that the strong showing will stay in place for the rest of this year and into 2017. The analysts focus on stocks with solid dividends that have consistently grown over time, and their performance this year is outstanding. Year to date, the portfolio is up on a total return basis 13% versus the S&P 500’s 12.9%.
The portfolio team adds BlackRock Inc. (NYSE: BLK), a top financial services company, to the portfolio, and many on Wall Street love the firm’s growth potential. It is the largest asset manager in the world, with roughly $4.9 trillion in assets under management. Its acquisitions of Merrill Lynch Investment Management (MLIM) and iShares transformed it from a fixed income manager into a multi-product and multi-channel giant, with roughly 40% of its assets under management overseas. It has leading franchises in exchange traded funds, institutional fixed income, alternatives and cash. It also operates Solutions, a leader in risk analytics.
The UBS noted in its research:
Strong historical and prospective dividend growth is underpinned by the company’s high quality, diversified business model. Dividends have increased 18% annually over the last 10 years. Dividend growth will likely moderate but remain solid in the low teens, consistent with our expectation for earnings growth in the years ahead.
BlackRock shareholders are paid a 2.33% dividend. The UBS price target for the stock is $430, and the Wall Street consensus target is $413.92. The shares closed Friday at $393.75.
In addition, here are the four top-yielding stocks currently in the portfolio that are rated Buy at UBS.
This company remains a top Warren Buffet holding and offers not only safety, but an incredible strong worldwide brand. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.
Led by Coca-Cola, its portfolio features 20 billion-dollar brands, including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade and Minute Maid. Globally, it is the top provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks. Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy its beverages at a rate of more than 1.9 billion servings a day.
The company reported third-quarter earnings that came in above some estimates, but slower growth and flat volumes brought out the sellers and they tagged the stock big time. It is important to remember though that the company owns 31.5% of Monster Beverage, which continues to deliver big numbers.
Coca-Cola investors are paid an outstanding 3.35% dividend. UBS has a $50 price target, and the consensus target is set at $46.04. The stock closed Friday at $41.74.