Investing in large-cap value, dividend-income stocks that have attractive, predictable and growing dividend-income streams that can compound over time allows investors to not be solely dependent on capital appreciation with stock picks, says Sean Chaitman, Chief Investment Officer of Shelter Rock Management, LLC.
“By layering in an attractive and continuously growing dividend-income stream and by following a disciplined valuation process based on free cash flow, we are able to significantly improve our potential to achieve consistently attractive returns on our equity investments over the intermediate to long term,” he said.
Chaitman names Pepsico, Inc., (PEP) as a stock in the firm’s conservative allocation client accounts. He says PEP is somewhat of a contrarian large-cap dividend-income holding due to the company disappointing investor expectations for the past couple of years because it didn’t focus on its core brands. Last month, Pepsico announced a major strategic initiative, where it is restructuring and going to be heavily investing in marketing and advertising for its core brands, he said.
“As part of their announcement, they reset investor expectations to what we think is actually pretty conservative annual earnings guidance for the next few years. They guided for a 5% earnings decline this year, and now it’s 10% below the most recent analyst expectations,” Chaitman said. “They also guided for a high-single-digit earnings increase in 2013 as they begin to get traction from the marketing efforts.”
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