Two Growth & Income Titans To Buy Today

U.S. stocks are near record highs. Many analysts would have downplayed the possibility of such a feat back in January, when fears of a sharp slowdown in demand from China and rising interest rates caused a mini-panic among some investors (and an opportunity for the rest of us).

The impressive rebound after the selloff came in recognition of the relative strength of the U.S. economy versus much of the rest of the world. Employment continued to rise, wages finally started inching higher, the Fed kept its power dry and energy prices rallied, but not so much as to cause harm to pocketbooks or corporate earnings. Investors also couldn’t help but recognize the solid financial and competitive positions many large global companies have established since the financial crisis.

#-ad_banner-#Investors have overlooked several worrisome signs: continued sluggishness in China, Europe, Brazil and Russia; an apparently stepped-up pace of terrorist attacks from ISIS; turmoil in the Middle East; Great Britain’s shocking vote to leave the European Union; an unpredictable, even bizarre, U.S. presidential race; and, most recently, a disturbing series of shootings in the United States that put the nation on edge.

As the old expression goes, the market climbs a wall of worry: when a significant number of investors are anxious yet stocks rise higher, nervous investors who had kept cash on the sidelines due to myriad concerns capitulate and start buying. That extends the bull market. The greatest risk to a bull market is not a time of serious concerns, but the opposite: a seemingly sunny scenario in which investors can bask, pollyannishly, and become too bullish. If everyone’s in the market, stock prices usually get inflated. The next direction for the overall market may be down.

I’m not suggesting we’re at that point. But with stocks at record highs despite continued global challenges, it’s a good time to take a deep breath, assess the composition and risk level of your portfolio, and think about shifting out of winners that may have run their course toward less glamorous, safer holdings — preferably ones that pay above-average income to boost returns if the stock market pauses.

Forestry giant International Paper (NYSE: IP) is the world’s largest paper and pulp producer. Its products include printer paper, coated paperboard (such as is used for paper plates), containerboard (cardboard boxes), corrugated packaging, and paper cups, lids and food containers.

While the online era was once considered to be a boon for those who want to use less paper, the opposite has occurred. Global demand for printer paper has remained higher than expected, while e-commerce has greatly increased demand for containerboard used in shipping. International Paper has spent the past decade shifting strategically out of higher-cost businesses toward areas where it can be the low-cost provider and supply growing markets in the United States and overseas, especially in Europe, India and Brazil.

Most recently, in May International Paper announced it would purchase key assets in Weyerhauser’s (NYSE: WY) pulp business for $2.2 billion, as both companies rearrange their portfolios to focus on their strengths. The deal will help International Paper remain the low-cost provider in so-called “fluff pulp” products.

International Paper has a strong balance sheet and solid cash flows. It recently traded at around 13.2 times analysts’ consensus estimate for 2016 earnings per share; the stock yields a hefty 3.9%. The company has expressed a commitment to increasing its dividend to keep it around 50% of free cash flow, and the payout has grown at double-digit rates over the past five years: from an annualized $1.05 in 2011 to $1.76 in 2015. Look for increased payouts annually, leading to a generous yield based on the current purchase price for buy and hold investors.

Pfizer (NYSE: PFE), the world’s largest pharmaceutical company, boasts a current product portfolio that includes blockbuster drugs Lyrica (pain and seizures), Prevnar and Prevnar 13 (pneumococcal vaccines), Viagra (erectile dysfunction), Chantix (smoking cessation) and Ibrance (breast cancer). It also has one of the industry’s best product pipelines of drugs in development, with a focus on cancer and cholesterol control.

With more than $50 billion in annual revenue and strong free cash flow, Pfizer is able to invest heavily in research & development as well as strategic acquisitions to ensure that it takes advantage of new medical breakthroughs. That said, its revenue growth has slowed in recent years as blockbuster drugs lost patent protection and weren’t replaced with equally big winners. Pfizer has used acquisitions to turbocharge sales and earnings growth, and the company reportedly is considering splitting itself in two or spinning off operations to unlock shareholder value. Whatever path it chooses to leverage its considerable strengths, Pfizer and/or its descendants are well positioned to take advantage of the aging of America and the growing reliance on pharmaceutical treatments for a wide range of ailments.

I’ve recommended Pfizer in the past, including in January as a way to take advantage of the New Year’s selloff. The stock is up more than 18% since then, but I think it has room to move higher — certainly over the long run, but even in the coming months as investors look to invest in blue chips that pay above-average dividends. Pfizer shares currently trade at less than 15 times analysts’ consensus estimate for 2016 earnings per share, and the stock yields 3.3% (and the dividend is likely to rise each year, as it has since 2010).

Risks to Consider: International Paper is vulnerable to slowing economic growth at home or overseas. Pfizer could be hurt by negative FDA news or other regulatory actions by U.S. or foreign governments. Its decisions about corporate structure also pose a risk if they’re badly received or executed.

Action to Take: Buy International Paper below $46 and Pfizer below $36.

P.S. If pulling down a yield of 10% a year sounds good — before capital gains — you need to see this. You’ll find stocks paying 15.1%… high-yielding REITs, trusts, partnerships and ETFs. (These cash cows are also posting capital gains as high as +368% for us. I explain that part here.)