Motley Fool Top Stocks Advisors 2011:The third high-yield superstar
Annaly Capital Management (NYSE: NLY) is my final dividend pick for 2011. This mortgage real estate investment trust (REIT) currently pays out a 14% yield, and it could be a great play for next year if inflation doesn't rear its ugly head. Annaly makes its money on interest rate spreads, using short-term financing to buy longer-term mortgage-backed securities, largely issued by Fannie Mae and Freddie Mac.
Annaly thrives in a low-interest rate environment, making it a great countercyclical play, and we have every indication that low interest rates will continue for some time. The Fed has already said that it will maintain low rates for an extended period. And even with Quantitative Easing 2.0 in full gear, there are already rumblings of a third iteration of the program, which would push interest rates still lower. So if you believe in the disinflation or deflation hypothesis, this company could be for you.
Alternative ways to play the deflation hypothesis would include Annaly spinoff Chimera Investment (NYSE: CIM) and American Capital Agency (Nasdaq: AGNC), which are both REITs and have the same fundamental business model as Annaly. American Capital Agency pays out a trailing yield of 18.7%, while Chimera sports a 16.9% yield.
Motley Fool Top Stocks Advisors 2011:Alex Dumortier, CFA, Fool contributor
In this environment, you're much more likely to find 2011's best international stock in the old-world, slow-growth markets of Europe or Japan. Most investors are now chasing emerging market stocks and acting as if no valuation is too high to own a piece of companies in high GDP growth countries -- never mind that the link between GDP growth and stock returns is very weak. Meanwhile, Europe and Japan have been left for dead by investors, despite the fact that both can boast world-class companies, some of which derive substantial profits outside their domestic/regional markets.
If you are willing to consider buying foreign stocks trading on the pink sheets (which I strongly recommend), I urge you to take a look at Pargesa Holding (OTC: PRGAF.PK). This Swiss holding company is jointly controlled by a master capital allocator, Albert Frere (it is no exaggeration to call him the Belgian Warren Buffett).
Pargesa owns large shareholdings in a small number of European blue chips, including Total (NYSE: TOT), Lafarge, and Pernod Ricard, which are all global franchises. Pargesa's Swiss shares currently trade at a 23% discount to their adjusted net asset value, enabling investors to buy some of the world's greatest companies with a healthy margin of safety. However, the U.S.-traded shares are very illiquid and are suitable only for those who would be willing to hold them beyond 2011.
Motley Fool Top Stocks Advisors 2011:Gerard Torres, Fool contributor
Remember the story of the tortoise versus the hare? Well, Israeli wireless service provider Partner Communications (Nasdaq: PTNR) is a lot like the tortoise. It churns out steadily growing profits, which it willingly returns to its shareholders.
The Israeli telecommunications market is undergoing a makeover. Recent regulatory changes have been instituted to promote greater competition. Meanwhile, the wireless market has hit its saturation point and is only expected to grow modestly. That doesn't sound like ideal business conditions, but Partner will be able to overcome these obstacles and continue to build its intrinsic value.
Partner Communications has first-mover advantage. While any new competitors will have to build up their infrastructure, Partner is continually adding customers, particularly to its higher-margin data services. Sure, it's not going to win any awards for staggering growth, but new entrants will have an uphill battle over the next decade if they want to take market share.
In the meantime, Partner offers impressive profitability and strong growth of free cash flow. Better yet, it maintains a dividend policy in which it will pay out at least 80% of its net income to shareholders while carrying a tempting price-to-earnings ratio of 9.2. Just like the tortoise, bit by bit it will get you to the finish line.
Motley Fool Top Stocks Advisors 2011:Tim Hanson, advisor, Global Gains
Markel Chief Investment Officer Tom Gayner was speaking at Fool HQ recently and was asked why his portfolio doesn't have more international exposure. He responded to that question with a question, challenging his interlocutor to decide whether Peoria, Ill., industrial giant Caterpillar (NYSE: CAT), or Japanese auto manufacturer Honda (NYSE: HMC) was the more international firm. The answer is that based on where these companies do business, Caterpillar is the more international pick. As it turns out, just 32% of Caterpillar's revenue comes from the U.S. versus 45% for Honda.
Now keep that example in mind as I reveal that my top international pick for 2011 is Bentonville, Ark.,-based retail giant Wal-Mart (NYSE: WMT). Although Wal-Mart is America's largest retailer and employer, the company actually has a very international future -- with aggressive expansion plans in place in China and Brazil, a recent acquisition in South Africa, and a rumored acquisition in Indonesia looming. And while many emerging markets stocks are being valued at a premium at present given the outsized growth expectations in these markets, you can buy Wal-Mart's exposure at a sharp discount given the market perception that it's a low-growth domestic retailer. I expect that perception to change in 2011 and for investors in Wal-Mart to benefit as a result.
Motley Fool Top Stocks Advisors 2011:Telecom darlings
The wireline space has been a particularly good performer in 2010, with major players CenturyLink (NYSE: CTL), Windstream (Nasdaq: WIN), and Frontier Communications (NYSE: FTR) all moving up nicely and paying out nice dividends. Frontier's EBITDA margins are comparable to those of Windstream at around 50%, with both trailing CenturyLink's 54%. So they are all able competitors.
But I think Frontier still has a lot of room to run, especially since these companies should be valued on their dividends. Frontier now offers a 7.9% yield, compared to Windstream's 7.1% and CenturyLink's 6.2%. Why do these three companies have such disparate yields?
If the market were to give Frontier shares similar yields to either Windstream or CenturyLink, its stock could still have upside of 11% to 27%, respectively, in addition to that meaty dividend. Even better, Frontier's free-cash-flow payout in the latest quarter was just 59% -- leaving the company some room to boost its dividend, perhaps back to the $1 level that we saw before the recent acquisition of Verizon's lines.
One further kick to all the companies in the industry is the possibility of consolidation as the wireline space becomes even more competitive. We've already seen some of the effects of that in the past few years, and there well could be more of it. This would push up stock prices even further. So those are the reasons Frontier could be a nice winner in 2011, and they're why I own the stock myself.
Motley Fool Top Stocks Advisors 2011:Smokin' dividends
It's hard to argue with a company that has been a dividend darling for as long as Altria (NYSE: MO) has. Altria has one of the strongest brands in the world, in Marlboro, and the company has boosted its quarterly dividend three times in just the last six quarters. Given the company's commitment to pay out at least 80% of its earnings, the stock looks like a great place for 2011 and some time beyond. With that commitment, any earnings increase goes straight back into investors' pockets.
Like the wireline telecom space, the tobacco industry has come under pressure, but Altria the stock has plenty of puffs left in it. And using the simple mathematics that I described above, it still can make a lot of sense to buy into this market leader now.