If you are looking to get to the top of Mt. Everest, you must choose which of the routes you are going to take before you embark. For investors seeking to reach their own financial summit, picking a path -- and sticking to it -- will make the difference between success and being left out in the cold.
For Gabelli Blue Chip Value Fund manager Barbara Marcin, the path of choice is total return, which puts growth and income (dividends) on an equal stage. "Dividend increases are happening at a record pace," she observes, adding that historically, "dividend policy always lags the earnings experience by 2 years."
That's important, she says, because it points to corporate confidence that earnings strength will continue and that payout ratios (the percentage of earnings used to pay dividends) will slowly get back to historical levels from the current cash-hording levels that have cut them in half.
Marcin uses Tupperware (TUP) as an example of a textbook total return investment, citing the company's unrivaled global franchise that does 85% of its sales overseas (with 40% from emerging markets). Tupperware currently has "a 1.9% yield, which is a 27% payout of their 2011 earnings consensus of $4.50. This is low by their historical standards, it has been closer to 50% long term, and while they have been pushed by investors to increase more, they have said they are comfortable increasing it only in line with earnings increases" which are projected to grow 12%, she noted in an email to me.
And that's the beauty of it. Your bond or CD will never pay you 12% more income next year than this year.
Another Marcin favorite is Citigroup (C) which she calls "a coming dividend play," her point being that the bank will go from paying no dividend to restoring one in the next year or two. Being "paid 4% to wait" in Pfizer (PFE) is another total return play Marcin owns in her fund.
Of course, don't just chase yield, she says. Investors should be "somewhat concerned" of yields north of 4%, she advises.
Does Marcin's path to the summit feel right for you? Let us know at firstname.lastname@example.org or log in and post your comments below.