Thursday October 25, 2012
by Brian Hicks, editor The Wealth Advisory
The true secret to getting wealthy in the stock market is deceptively simple: Buy solid dividend-paying stocks and reinvest those dividends. Studies repeatedly show as much as 70% of stock market gains come from dividends.
Among the best dividend opportunities available, we recommend Boeing (BA), one of our favorite companies, and Cisco Systems (CSCO), one of the top value plays in the stock market today.
Boeing has also proven to be a forward-looking company. It identified a major need of the airlines —namely, saving money through increased fuel efficiency.
The new 737 line of airplanes was unveiled in August 2011. Since then, it's gotten 858 orders for the fuel efficient 737 MAX plane. And it has 824 orders for the 787 Dreamliner line of airplanes.
Boeing has six to seven years of total backlog booked, valued at nearly $375 billion. Free cash flow should be back to 2009 levels ($3 billion) this year and hit $4.7 billion next year.
The 2.5% dividend is great, and it's a certainty that we will see a hike in the payout, probably in the next six months.
Boeing has underperformed the Dow Industrials ever since the financial crisis. We expect the stock to do better as cash flow improves and the dividend increases.
Current prices are attractive, and we believe you will be rewarded with as much as 35% gains for the stock in the next 12 months.
Cisco has $48.72 billion in cash — nearly half its $100 billion market cap. It has a low forward P/E of just 9, and it just raised its dividend by 75%, from $0.32 a share to $0.56.
Not only that, but Cisco is actively buying back shares, which will make the valuation even more attractive.
To top it off, Cisco is expected to grow earnings 5% over the next two quarters, and then 7% in fiscal 2013. That may not sound like much, but in the current environment where many companies are reporting flat earnings, growth from Cisco is especially impressive.
When you combine that growth with the current low valuation, we expect there could be as much as 37% upside over the next 3-6 months.
Learn more about this financial newsletter at Brian Hicks' The Wealth Advisory.