Just because the economy is growing does not mean investors should abandon high-paying dividend stocks in favor of growth names, says Oliver Pursche, co-portfolio manager of GMG Defensive Beta Fund (MPDAX).
"No one is saying you shouldn't own growth stocks. The point is that dividends are a key component of total return, so investing in high-quality, high dividend paying stocks that also have growth characteristics should do very well in 2012, just like it did in 2011," says Pursche.
The $20 million fund, which launched in August 2009, has dropped 3.4% over the past 12 months, ranking it in the 66th percentile of Morningstar's (MORN) multi-alternative investment category.
Pursche specifically points to McDonald's (MCD) as a company that fits his growth plus dividend criteria, as the fast-food purveyor continues to expand internationally without skimping on its dividend, now yielding 2.8%. The company's stock is up more than 35% in the past year, compared with domestically oriented Wendy's (WEN), for example, which is up only 2% and yields 1.5%. And Pursche sees more room for Mickey D's to grow in 2012 even with a slowing Europe.
"They are ramping up revenues, store sales and everything else a growth business needs to accelerate. So it's a great example of a company that's exhibiting all of the qualities of a great growth stocks but has high yields and a strong balance sheet to support it," says Pursche.
Another Dow stock that is one of Pursche's prime picks is chipmaker Intel (INTC), which soared 24% over the past year and is now yielding 3.3%. Not bad compared to competitors AMD (AMD) and Texas Instruments (TXN), which have fallen 38% and 8% over the same period.
"Intel is best of breed. It has a very strong balance sheet, high credit quality, good growth prospects and an attractive yield over 3% so it's giving investors the best of both worlds," says Pursche.
Finally, in the energy sector, Pursche likes Royal Dutch Shell (RDS-A), which yields 4.6%, as an alternative to American-based oil majors Exxon Mobil (XOM) or Chevron (CVX), which yield 2.2% and 3% respectively.
"When you look at Royal Dutch's balance sheet and its business model, it's not much different than Exxon Mobil," says Pursche. "However, since it's based in Europe, it's gotten beaten up a little more, so you are getting a lot more yield, and you should take advantage of that as an investor."
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