YUM Brands

The Best Opportunity This Decade
By Jim Mueller June 23, 2008 Comments (0)
1
Recommendation

Over the past 60 years, the United States has seen, and survived, 10 recessions (not counting the one we might be in at present). From the shortest one -- six months in 1980 -- to the two that spanned 1973-1975 and 1981-1982, we've muddled through and come out the other side. In between each, we've experienced, on average, almost five years of expansion.

So while we might be in another recession right now, I'm excited!

Pardon me while I wipe my chin
First, we have a whole bunch of people running around in panic mode crying, "The sky is falling!" They don't want to hold stocks during a recession, so they're willing to sell them -- cheap.

Second, the news media fan the flames of panic with constant stories about weakening consumer spending and the specter of recession.

Third, we've got a handful of really hated companies. Specifically, I'm talking about the banks, thrifts, and builders that caused and are feeling the fallout from the mess we're in.

What does that add up to? Bargains.

Like a kid in a candy store ... and the candy's on sale
One option is one of the banks -- specifically Wells Fargo (NYSE: WFC). It's been feeling the effects of the credit crisis unwinding and shares are down some 33% from the highs reached last fall.

There's also the investment bankers and brokerages. While E*Trade (Nasdaq: ETFC) is struggling, others, like JPMorgan Chase (NYSE: JPM), might be worth investing in. Heck, if it gets cheap enough, I'll even take a closer look. (Even possibly bad companies can be good investments if you get them at the right price.)

Then there are (still) the retailers, trying to survive declining same-store sales and decreased consumer spending. This is where a strong balance sheet is helpful. American Eagle Outfitters (NYSE: AEO), for instance, has $370 million in cash and short-term investments and no debt. As long as cash flow keeps coming, and it has so far, the company should survive to become great again.

Even some big name companies have been dragged down: Pfizer (NYSE: PFE), maker of a lot of the drugs we take, for instance. The stock has been falling for most of the past year.

Finally, there are restaurants. Chipotle Mexican Grill (NYSE: CMG), the burrito spinoff from McDonalds, and Yum! Brands (NYSE: YUM), the owner of both KFC and Taco Bell, are both off significantly. Possibly all that talk about lower consumer spending in 2008 has driven their prices down. But really, who cares about 2008? For my money, I'm more interested in companies I can buy today to own in 2013 -- so thanks for the bargains!

"When Miller and Nygren speak, people listen."
Investing in the above industries might seem counterintuitive now, but Bill Miller of Legg Mason says au contraire:

[Several] years ago, everyone wanted tech and Internet and telecom stocks ... The time to buy them was in 1994 or 1995, when they were cheap. But in 1994 or 1995, people wanted banks and small and mid caps, which should have been bought in 1990, and well, you get the picture.

Bill Nygren, another great value investor, agrees. Looking at the current economic situation, he wrote, "What usually happens is that suffering industries begin to recover, the next crisis comes from somewhere least expected, and the cycle of creating new investment opportunities starts anew. We have no reason to believe it will be different this time."

What these gentlemen know is that investing today in areas that aren't well liked will position your portfolio for when we come out of this bear market. There will be another bull market. What we have now is the chance to grab some good companies while they're cheap.

So what are you going to do? Stop investing in stocks altogether, worried that things will be different this time? Or listen to master investors (not me -- Miller and Nygren!) and look at some opportunities?

I know what I'm going to do, and I can hardly wait.

Finding value
If you'd like some help in figuring out if a beaten-down company is worth investing in, take a look at our Motley Fool Inside Value service. Philip Durell and his team look in downtrodden areas of the market, just as Miller and Nygren advise.

Since the newsletter's inception, its picks are beating the market; plus, you can see the stocks they're recommending today for free with a 30-day trial.

This article was first published Feb. 12, 2008. It has been updated.

Jim Mueller owns shares of American Eagle and Yum! Brands, but no other company mentioned. The Motley Fool owns shares of American Eagle and Legg Mason. The former company is a Stock Advisor recommendation, while the latter is an Inside Value pick, as is Pfizer. Chipotle is a Rule Breakers choice and a Motley Fool Hidden Gems selection. JPMorgan and Pfizer are Income Investor recommendations. The Fool has a disclosure policy.

Franchise Stocks

5 Dynamic Dividend Stocks
By Matt Koppenheffer June 20, 2008 Comments (0)
2
Recommendations

The New York Yankees of the '50s and the Chicago Bulls and Dallas Cowboys of the '90s had one crucial element in common: consistent excellence in their organizations and performance. That's a rare accomplishment, but if you think it could never occur in your portfolio, think again. Carefully chosen dividend-paying stocks could be your key to superstar returns.

Build the next investing dynasty
These long-haul outperformers can help you build your fortune, as studies from investing gurus such as Jeremy Siegel have shown time and time again. Finding them is our Motley Fool Income Investor service's mission.

National Fuel Gas (NYSE: NFG), for example, has returned more than 100% since August 2005, and it's currently rewarding investors with around a 2.1% yield. Or consider Snap-on (NYSE: SNA), which has returned more than 100% since October 2004, atop a current 2.2% yield. While these stocks happen to be Income Investor recommendations, you don't need to be a subscriber to get these great gains.

Identify new talent
With the help of Motley Fool CAPS, we'll search for the best dividend-paying stocks around. Here are several dividend picks that have also earned high ratings from the 110,000-plus members of our CAPS community:

Company
Yield
CAPS Rating (out of 5)

PetroChina (NYSE: PTR)
4%
****

CPFL Energia
8.6%
*****

Intel (Nasdaq: INTC)
2.5%
****

Cellcom Israel (NYSE: CEL)
8.9%
*****

Yum! Brands (NYSE: YUM)
2.1%
****

Source: Capital IQ, Yahoo! Finance, and CAPS as of June 19.
Any one of these quality companies would add some dividend excellence to your portfolio, but I thought I'd kick off further research with a closer look at Inside Value favorite Intel.

Dependable dividends
As we know, not all dividend payers and dividend payouts are created equal. For that reason, it's important to make sure that the dividend you're expecting isn't about to take an extended vacation with the dodo bird. To figure this out, I like to look at the prospects for the company's business, the company's history of paying dividends, and the sustainability of the current dividend.

Fortunately, most people reading this are likely very familiar with Intel's business. As a world leader in semiconductors and microprocessors, it has a tremendous business and an enviable brand. Though it does face competition, its primary competitor, AMD (NYSE: AMD) ... well, let's just say it's been through some shaky times. And though tech companies aren't typically known for their dividend payouts, as the table above shows, you can now collect a 2.5% dividend for holding Intel stock. And hey, that yield is nearly as much as a one-year treasury.

Looking at the dividend, it's notable that though Intel has been paying some dividend since 1992, the payout didn't even break the $0.10 level until 2004. Since then, the dividend has been a dependable part of shareholder returns, and it's been raised every year. However, this is hardly the dividend history of many of the hardcore dividend payers.

Digging into the financials, though, there seems to be little reason to be concerned about the future of the dividend. Intel produces a healthy amount of cash and has to spend a relatively small portion of it on new capital equipment. This leaves plenty of dough to continue paying -- and growing! -- the dividend, not to mention buying back billions of dollars of stock.

On CAPS, the stock may not have a five-star rating, but it can still claim 5,000 bullish investors versus just 496 bears. One recent bull, CAPS All-Star DarkToast, isn't expecting to get rich from the stock, but thinks it's a solid bet to outperform the market:

This stodgy old stock still has some life in it. While the days of $60 a share are likely only in the past, I expect Intel to beat the S&P over the next 5 years. With the best in the world server and desktop chips, growing networking market share, and very interesting new embedded processors Intel should see some healthy growth.

In addition I think it is likely that Tech stocks will lead the way when the economy eventually turns around. Not that I am holding my breath...

You can check out who else has been bullish on Intel, as well as chime in with your own thoughts, by heading over to CAPS. You may also want to check out a few of the other top-rated dividend payers above while you're there.

Dividend stocks could help you transform your portfolio from the flash-in-the-pan Florida Marlins into the dependable New York Yankees. And if you hate the Yankees, it's probably because they're so darn good, so darn often.

More CAPS Foolishness:

7 Highly Rated Stocks on Sale
7 Must-Read Stock Blogs
7 Stocks Defying the Doubters
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Snap-on and National Fuel Gas are Motley Fool Income Investor picks. Intel is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Yankees fan and Fool contributor Matt Koppenheffer hopes the Yanks can create some fireworks for the last year at Yankee Stadium, and has his fingers crossed that the Cowboys will never get back to the top again. He does not own shares of any of the companies mentioned. The Fool's disclosure policy is a true investing dynasty.