3. Cisco Systems, Inc. (NASDAQ: CSCO) is the leader in networking and communications equipment now and will be in the decade to come. Future growth will come from core router, switch, data and the growth of wireless technology in communications equipment. The move into data centers and other areas will almost certainly allow for steady growth in the decade ahead. Cisco will also benefit from the growing need of telecom carriers to upgrade their networks. The company was dead money over the last decade despite its solid growth and spending billions on share buybacks to keep dilution low. The company’s $40+ billion cash arsenal offers shareholders stability and allows it flexibility to make acquisitions. Its move to begin paying dividends will offer investors a cushion against market volatility.
4. Dollar General Corporation (NYSE: DG) is the king of the dollar stores. It is almost certain that the consumer trends of ‘the new normal’ and the ‘post-new normal’ will remain favorable for this segment. Dollar stores gained sales when the economy was beaten-down and continued to grow as it improved. The retailers also began stocking merchandise priced above $1.
The company was taken private by KKR, Goldman Sachs, and Citi in 2007 and came public on the cheap two years later. Its shares have underperformed rivals Dollar Tree and Family Dollar, but they should rebound over time. Recent debt upgrades from ratings agencies are likely to continue and it seems that even the cautious analysts expect the share price to rise. The company has operated since 1939 and now has about 8,900 stores in 70% of the states in America. While there is no dividend now, Dollar General will generate significant cash flow after debt is paid down or refinanced that could go toward dividend payments.
5. Exxon Mobil Corp. (NYSE: XOM) is the king of integrated oil with roots dating to Standard Oil. With it being the largest company in America, investors may be concerned over the billions of dollars required to buy up its shares at a rate that will drive the price higher. Its valuation is cheap as forward P/E ratios get close to 10 and its 2.5% dividend yield has much more room to grow. Its calculation of proved reserves almost equally between liquids and gas rose to 23.3 billion oil-equivalent barrels at the end of 2009. If Warren Buffett or any of his successors ever want to invest their billions in oil, they need to consider Exxon Mobil. Its recent acquisition of XTO gave it a large move into natural gas, which has acted as a cap on the stock compared to peers because of 2010 nat-gas pricing. In energy trends, the one constant is that nothing lasts forever. The potential natural gas demand ahead is a real hedge against oil that was done as prices were cheap on the gas side of the equation.
6. Kimberly-Clark Corporation (NYSE: KMB) has been around since the 1800’s and is one of the top consumer products companies in the world. Its products include paper towels, tissues, surgical drapes and gowns. The consumer products industry is usually defensive for investors, yet growth can be seen despite rising in-store promotional expenses. P&G is exponentially larger, while Colgate-Palmolive is about 150% the size of Kimberly-Clark. Consumer products have always faced pressure from generic and private label rivals, yet they seem to keep slowly growing through time. Emerging markets are perhaps the biggest potential for growth area for the industry. Kimberly-Clark also leads peers in dividend yield by far with a 4.20% payout. Despite the high payout, the company can keep raising its payouts and it has a history of raising its dividends.
7. General Electric Co. (NYSE: GE) is back to being the best positioned of the conglomerates for investors seeking growth and income after the economic meltdown. The company’s woes are farther and farther away, with NBC Universal on the way out and its financial services problems coming under control. The company could also decide to unload its appliances unit again. Its positions in health care, energy, water filtration, jet engines and rail engines will assure GE’s future growth. Shareholders will also be helped by a normalization of the dividend and the resumption of share buybacks. The internal long-term growth targets are at about 20% return on capital yearly, but GE has kept making acquisitions to help its growth. It seems long ago that GE was a $40 stock, but if the markets have shown anything it is that anything is possible. As GE’s earnings grow, so will its dividends.
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