This post is part of a special report, Top Picks for 2010, the 27th annual survey in which TheStockAdvisors.com asks the nation's leading advisors for their single favorite stock for the new year. See all 80 stocks listed here.
"My definition of safe is to avoid cyclical companies that can be derailed by unexpected economic events or a sudden change in Fed policy," says dividend expert Kelley Wright.
In Investment Quality Trends, he suggests, "Additional requirements are a long history of increased earnings and dividends, broad institutional sponsorship, and ample outstanding shares for trading liquidity. One such company that fits that bill is Altria Group (MO), my top pick for 2010."
Wright continues, "As attention turns toward 2010, the annual dilemma of 'what do I do now' moves front and center.
"With the Fed ostensibly sticking to its 'for an extended period' mantra, the conventional wisdom is that the recession is behind us and all will remain well as long as interest rates remain low and liquidity plentiful.
"While the recession may indeed be over, under the technical definition anyway, and it is investment suicide to try and fight the Fed, the ever-ubiquitous Wall of Worry is steep enough to approach the new investment year with caution. In that vein, my instincts and experience are to play it safe.
"My definition of safe is to avoid cyclical companies that can be derailed by unexpected economic events or a sudden change in Fed policy.
"Altria Group is a holding company whose operating companies include Philip Morris USA, U.S. Smokeless Tobacco Company, John Middleton and Ste. Michelle Wine Estates. The company's brand portfolio consists of successful and well-known brand names such as Marlboro, Copenhagen, and Skoal.
"Trailing twelve months earnings for MO are $1.53 per share, and, based on the recent price of $19.15 per share, the P/E is in the mid-12 range. The cash dividend of $1.36 per share provides an outstanding dividend-yield of 7.10%.
"With a payout ratio of about 88% ($1.36 of the $1.58 ttm earnings are paid out in dividends), some investors who have seen some dividends slashed or eliminated over the past year may balk at such a high dividend-yield.
"The key to a healthy dividend though is free cash flow and a high return-on-equity (ROE). Altria Group converts about 16% of its revenue into free cash and its ROE is well above average.
"The IQ Trends Profile of Value for Altria Group is dividend-yield extremes of 7.0% and 4.0% respectively. Accordingly, whenever the dividend-yield for Altria Group is within 10% of 7.0%, the stock represents good historic value and is appropriate to purchase.
"When the dividend-yield declines to 4.0% ($34 based on the current dividend), the stock has reached its historically repetitive area of overvalue and profits should be harvested."
Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stocks of the nation's leading financial newsletter advisors.
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