Many investors and consumers continue to flee stocks for the safety of cash. The willingness to park cash and earn 0% is done under the false pretense that cash is "always" king. Undoubtedly, any investor should always have a portion of his or her assets in liquid cash available for a variety of reasons, but if you have the asset profile to put some of your capital to work, then some stocks offer tremendous income potential along with a high safety potential.
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As Good as Cash
It may sound outlandish, but there are some blue chip type stocks today that come close to being as good as cash in the bank. Microsoft (MSFT) is around a $250 billion company with over $50 billion in net cash in the bank. The company has also been generating a ton of cash for years. Now some of that cash is coming back to investors in the form of a roughly 3% dividend MSFT has been adding to the payout over the years. My guess is that a five-year investment in Microsoft will easily trump a five-year CD with very little added risk.
If computers aren't your thing, then how about things like frozen pizza, cookies, cheese, coffee and chocolate. Kraft Foods (KFT) has been feeding Americans for decades and rewarding shareholders with a dividend, currently 3%, for just as long. The dividend is not going anywhere and neither is the demand for the company's products. Shares have performed nicely over the past year, but patient investors likely won't be disappointed from owning part of this iconic food brand.
SEE: Why Dividends Matter
Generating income from stock dividends require the same patience you give when putting money in the bank. Those who have the time to let the stock market hold a portion of their hard-earned capital are likely to see a better result than cash and most certainly bonds. Good companies like Coca-Cola (KO) can battle inflation with pricing power, thereby minimizing the erosion in the value a dollar invested in Coke. Inflation along with pricing power usually leads to an increase in profits and the dividend. Coke has pricing power and a 2.7% dividend yield to go along with it. To a certain extent, so does Johnson and Johnson (JNJ), one of the most successful companies in the past century.
While JNJ has recently suffered from some product recalls, the company remains best in class. Iconic brands like Tylenol, Band-Aid, Listerine and many others have enabled JNJ to pay a consecutive dividend for decades, often increasing the payout each year. Today JNJ yields near 4%, more than double the 10-year Treasury but also providing inflationary protection thanks to a growing earnings stream.
To quickly abandon all stocks for the safety of cash may turn out to be a riskier proposition than one might otherwise think. Where interest rates stand today, holding cash for investment purposes will likely to prove to be a lose-lose scenario.
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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.