Josh Peters Investments

Financial planners bullish on dividends

CHICAGO — A slumping stock market and economic difficulties make this a challenging time for investors looking for the best place to put their money.

No consensus emerged among the nearly 1,700 financial planners and fund managers attending the annual Morningstar Investment Conference. But many floated ideas for good buys and strategies in this difficult environment.

Several professionals offered their single best investment ideas:

Josh Peters, equity income strategist for Morningstar: Procter & Gamble (PG) and Abbott Laboratories ( ABT ) as dividend stocks to hold for the long term. Both have yields of more than 3 percent. “Their stocks haven't moved in years but both their dividends and revenues are moving.” Both are businesses that are going to be around and still strong 15 years from now.

P&G's rise in product sales is coming from emerging markets with good growth prospects. Abbott's top-selling drug, Humira, which is used to treat inflammatory diseases such as rheumatoid arthritis, is “not going to fall off the cliff” and the company keeps finding new uses for it.

Ross Levin, founding principal of the financial planning firm Accredited Investors Inc. in Edina, Minn.: Large-cap funds in general, and Jensen J (JENSX) in particular. It's a large-cap growth fund, rated five stars by Morningstar.

And for cash, use an online bank for the best CD rates. “We're moving a lot of customers into Ally Bank , where they can get 2.3 percent for a five-year CD.”

Robert Johnson, director of economic analysis for Morningstar: Treasury Inflation-Protected Securities should be the bedrock of any investor's portfolio to help provide a hedge against inflation. They are “badly overpriced” at the moment but still a good buy if you believe that inflation is going to be 4 percent to 5 percent over the next year. TIPS are a type of Treasury bond whose payout is adjusted every six months for inflation.

Paul Larson, equities strategist for Morningstar: A master limited partnership called Energy Transfer Equity (ETE). It has a 5 percent yield, and new pipelines coming on line enable it to achieve double-digit growth in the next couple of years. Master limited partnerships are a publicly traded version of limited partnerships, which enables them to avoid paying corporate income taxes. Most are oil and gas pipeline companies.

Do You Need an Investment Umbrella?

Jeremy Glaser : Do you need an investment umbrella? I'm Jeremy Glaser with Morningstar.com. I'm here today with Morningstar DividendInvestor editor, Josh Peters, to see exactly what an investment umbrella is and what's on the horizon for investors coming up.

Josh, thanks for talking with me today.

Josh Peters : Good to be here, Jeremy.

Glaser : So do you see a lot of dark clouds forming over the investment horizon?

Peters : Well I'll tell you, it's not a bad idea to carry an umbrella if there's a meaningful possibility it might rain. I think a lot of the clouds that have been hanging over the American economy over the last two or three years are perhaps lifting. We've got some kind of economic recover underway.

But the bigger, broader picture is that stocks are still not cheap. Whatever you think of the economy's long-term growth prospects, how things may have changed in the post-bubble environment, what you can say is that relative to history, price earnings multiples are still relatively high against average earnings, and dividend yields certainly are very low compared to past norms.

So I think it pays to think not in terms of it's going to rain, there's going to be bad economic events, bad stock market events, but to try to think proactively in terms of ways to insulate yourself from the worst effects that you might have to experience if worst comes to worst.

Glaser : So if it does start to rain, what are some of the umbrellas, if you will, investors could keep in their toolkit?

Peters : I think one is to look for stocks with lower price-to-earnings multiples, where you have better earning power and you're paying less for it. I actually priced out one of my two model portfolios, my Builder Portfolio. It's trading at quite a bit lower PE than the market overall.

So I'm not making a bet on as much earnings growth. I'm not having to take the same level valuation risk as the market overall in holding this particular basket of stocks. I like that, to look at it on an account-wide basis.

Dividend yields also, above average dividend yields I think are a very valuable umbrella. Here you have a source of return that's in cash, it's always positive, you never have to give it back. This is a reason dividend yields will provide you with a reason to go on owning and finding some reward in stocks, even if valuation multiples are contracting, even if economic growth disappoints.

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