Hoping for the Best Isn’t an Investing Strategy. This Is What to Do Instead.
Listen to this post
It should have taken you 20 minutes to get to your office, but traffic turned that into a 45-minute commute each morning and evening. The last-minute tasks your boss sprang on you kept you in the office while everyone else was unwinding at home. You may have sat next to a co-worker who it seemed was put on this earth to do nothing other than annoy you.
Think about all those hours you put in and everything you put up with so that you could, someday, retire comfortably.
Well, inflation is now eating away at the money you have diligently saved, and the rapid price drops in certain stocks may feel like a punch in the gut each time you look at your portfolio.
Of course, we can’t just put our heads in the sand and hope that things will get better.
Hope is not a strategy.
What is a strategy is making trades and investments in high-quality companies that can generate income for you (dividend stocks) and have competitive advantages (moats).
My friend and colleague Senior Analyst Mike Burnick calls income-generating stocks “Pay Me Now” stocks, which are the kinds of profit opportunities he recommends to the members of Dividends on Demand (current, logged-in members can access his portfolio here; those who aren’t members of Dividends on Demand can learn more here).
“Pay Me Now” stocks have ample cash flow and can use it to pay you income through dividends today, which is critical because now is not the time to wait for growth stocks to someday appreciate in value. Without dividends, you’re paid nothing while you wait for that to happen — if it happens at all.
We also want companies with strong moats, advantages over competitors through factors like brand value, low-cost production, efficient scale, and unique products and services that can’t be or aren’t easily replicated.
Using our proprietary Health Indicator analysis system, I found two companies in the Green Zone (the healthiest position) that offer the dynamic duo of paying dividends AND having moats.
There are many more companies that offer these two advantages, but I want to showcase just these two and share one moat for each to avoid information overload.
Let’s jump right in.
Company No. 1: Energy Transfer (ET)The first company on my list, Energy Transfer, has 120,000 miles of energy infrastructure in place for oil and natural gas.
That’s the distance of driving from New York City to Los Angeles and back… 21 times.
The moat for this company is the massive network of pipelines it has established, as getting these pipelines up and running requires not only expertise but also heavy amounts of capital. And that’s been a worthwhile investment for Energy Transfer, allowing the company to shuttle a third of the United States’ natural gas and crude oil.
Energy Transfer’s strong position in the market enables it to pay a generous dividend of 7%, or $0.80 per share.
ET is currently in the Green Zone, and while many stock prices have been hitting the floor, ET is up 1.44% over the last month. That might not sound sexy, but again, I’d rather have a stock that has managed to buck the broader downtrend and that can also pay me a dividend.
Company No. 2: Kronos Worldwide (KRO)The whiteness in your paper, wall paint, sunscreen, and cosmetics isn’t there by accident.
Titanium dioxide (TiO2) was used to achieve that clean, bright sheen, as it’s considered the most effective whitening agent in the world.
Kronos Worldwide bills itself as “the TiO2 company,” having made TiO2 pigments since 1916.
Mainly sourced from China, titanium dioxide is undergoing a shortage, as COVID-19 quarantine efforts, supply bottlenecks, and labor shortages have all led to issues with obtaining it.
Luckily, with production plants in five countries and two continents, Kronos is able to be more agile than if it just had facilities in China.
Expecting an increase in consumer sales, the company sees demand for TiO2 growing 2% to 3% annually, and the company is also benefiting from higher prices, with selling prices rising 17% from Q4 2020 to Q4 2021.
There are only so many companies out there that specialize in TiO2 pigments, and the supply constraints are fueling a growing demand. Profit margins and other metrics may look different once supply catches up with demand, but there will be a shortage for the foreseeable future.
KRO has been in the Green Zone for two months now, and it offers a dividend payout of $0.76 per share, which is a 4.12% yield.
Final TakeThe companies I shared today, Energy Transfer and Kronos Worldwide, both have competitive advantages and offer dividend payouts that yield 7% and 4.12%, respectively.
In other words, they each have a moat and generate income for their shareholders.
Of course, these are just two opportunities of many that I found using our Health Indicator.
What stocks do you think offer the best one-two punch of income generation and a strong moat? Let me know here.