UBS Makes Huge Q4 Addition to Popular Dividend Ruler Portfolio
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 that 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 outperformance will stay in place for the rest of the year and beyond. 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 9.9%, compared with the S&P 500’s 7.2%.
The portfolio team added top retail stock CVS Health Corp. (NYSE: CVS) to the portfolio. The stock has been hit hard recently and is down almost 20% since May. CVS provides integrated pharmacy health care services. Its Pharmacy Services segment offers pharmacy benefit management solutions, such as plan design and administration, formulary management.
The Retail/LTC segment sells prescription and over-the-counter drugs, beauty products and cosmetics, personal care products, convenience foods, seasonal merchandise and greeting cards, as well as provides photo finishing services.
The company operates 9,655 retail stores in 49 states, the District of Columbia, Puerto Rico and Brazil, primarily under the CVS Pharmacy, CVS, Longs Drugs, Navarro Discount Pharmacy and Drogaria Onofre names; online retail pharmacy websites; and 32 on-site pharmacy stores, long-term care pharmacy operations and retail health care clinics.
The analysts noted this in the report:
CVS shares have underperformed this year (–10% vs. +7% for the S&P 500) largely due to fears about the growth outlook for its pharmacy benefit manager or PBM, which accounts for about one-third of segment profits. Investors fear greater competition, especially from managed care organizations developing their own PBMs. However, as one of the largest PBMs, with a unique hybrid business model, we believe CVS has the scale and product differentiation to continue to defend and increase its market share in the PBM marketplace.
Some think that Warren Buffett may have his eye on the company. CVS investors are paid a 1.95% dividend. The UBS price target is set at $107, and the Wall Street consensus price target is $108.74. The shares closed Wednesday at $87.47.
In addition, here are the four highest yielding stocks 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.
Despite reporting second-quarter earnings that came in above some estimates, slower growth and flat volumes brought out the sellers and they tagged Coke 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 receive a 3.35% dividend. UBS has a $50 price target, while the consensus figure is $47.17. The stock closed Wednesday at $41.78.