News Analysis date published New: 
Wednesday, October 17, 2012 - 11:30
New Date created: 
Thursday, October 18, 2012 - 09:21
New Date last updated: 
Wednesday, October 17, 2012 - 11:30

2 of My Favorite Retirement Savings Stocks

Wednesday, October 17, 2012 - 11:30am

If you've read my articles lately, then you probably know how much I like following the pros when it comes to making investment decisions. I truly believe that following large fund managers, observing certain big-time investment analysts, their "copycats," or even tracking the holdings of certain government officials is as close as one can get to legal "insider information" and gain an edge over the financial markets.

In that sense, the latest investment revelation I had came from a recent Financial Times report of U.S. Treasury Secretary Tim Geithner's phone calls to Larry Fink, BlackRock's (NYSE: BLK) CEO.

According to the report, Geithner's calls and meetings with Fink outnumbered the combined meetings and calls with the six largest U.S. banks within a period of 18 months. In total, the two spoke on at least 49 occasions. It's clear that their close relationship shows just how BlackRock and Fink have critical financial insight that reaches beyond the normal financial institution's scope of knowledge.

Put simply, BlackRock is a firm with ideas worth taking seriously.

With this in mind, I took a closer look at the research BlackRock has recently published. And what I found may foretell what the future holds for the U.S. economy and stock market.

One piece of the firm's latest research analysis -- "Means, Ends and Dividends" -- lays out the case for it calls "dividend investing in a new world of lower yields and longer lives."

The fact is that more than 2 billion people are expected to be over the age of 65 by 2050, according to the U.S. Census Bureau. Because people are living longer, they will require a steady income for a longer time. And you don't have to be an expert to know that high dividend yields are getting harder and harder to come by in this low interest rate environment.

That's I'm always looking for what StreetAuthority's Carla Pasternak calls Retirement Savings Stocks. These are under-the-radar dividend-paying stocks that can provide the income needed to enhance your quality of life after you leave the workforce.

Whether you're currently in retirement, about to retire, or are just getting started in building a nest egg, I think the best time to look for Retirement Savings Stocks is now. Specifically, you should look for stocks poised to increase their dividend yields consistently over time.

When it comes to Retirement Savings Stocks, there are many great choices, but there are two solid stocks that stand out to me as prime candidates...

1. General Electric (NYSE: GE)
Yield: 3%

I know I said "under the radar" earlier, and you can't get more blue chip than this monster of a company, but I still think it's worth considering. The stock has surged more than 20% this year alone, readily beating the benchmark S&P 500.

As a long-term holding, investors will appreciate General Electric's stability on earning results. During the last eight earnings announcements, there have only been two that pushed the shares more than 5% in either direction. Analysts are expecting a 15% net income increase for the third quarter 2012. Hit or miss, we will know on Friday, Oct. 19, but history makes it clear not to expect an outsized move in either direction. The low volatility combined with steady and potentially increasing dividend payments make GE a perfect addition to any portfolio.

The company currently pays a quarterly dividend of 17 cents per share, for a total yield of roughly 3%. The nine straight quarters of operating profit growth and a $204 billion industrial order backlog cements the current and future prospects for the company.

GE's diversified industry base and hefty cash flow of $14.2 billion creates room to toss some of that back to investors. That's why I suspect the company's third-quarter conference call on Oct. 19 may just contain some good news in terms of an increase in dividends.

Looking at the stock from a technical perspective, the price is solidly above the 50- and 200-day simple moving averages. This indicates that a solid uptrend is in place. However, the stock has just pulled back from its highs and is forming a base at the $25 area. This has created an ideal technical entry level.

2. Valspar (NYSE: VAL)
Yield: 1.5%

This paint, stain and coating manufacturer's stock has almost doubled during the past year. This is primarily due to an improved global economic picture leading to an increase in construction in many regions.

Valspar currently pays a quarterly dividend of 80 cents per share. The company also boasts a robust free cash flow of $160 million. The current yield might seem small, but the company's improving prospects combined with a history of 34 straight dividend hikes means investors will likely be collecting a bigger and bigger dividend check over time.

Taking a look at the technical picture, shares have been trending up since June 1 in an erratic fashion. The price rose to $60 prior to falling back and building an entry-level base between $56 and $57.

Risks to Consider: There are no guarantees that any stock will go up forever in this stock market, let alone increase its dividend. But certain traits can definitely place the odds in your favor. I look for factors like a low payout ratio, a concrete balance sheet and a record of dividend increases. That's the way to build a Retirement Savings Stock portfolio.

Action to Take --> General Electric and Valspar are strong candidates for increasing their dividend yields over time. Although there are many stocks that increase their dividend payments, these two are standouts. Buying these Retirement Savings Stocks now makes solid investing sense.

David Goodboy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.