Duke Energy Corp (DUK)

[johnsyn]

DICK DAVIS INVESTMENT OF THE WEEK HIGH DIVIDEND PAYERS RECOMMENDS DUK:
We recently conducted a short survey of our Dick Davis Investment Digest subscribers. Several common concerns were market volatility and economic uncertainty (which I wrote about two weeks ago here). Today, I want to address a third common refrain. As a subscriber from Texas put it: "Maximize dividend income while preserving capital."

There are a lot of fixed-income investments for investors to choose from: bonds and preferred stocks offer investors varying levels of security on corporate debt. There are always a few alternative income investments in every issue of Dividend Digest, but dividend-paying stocks are our main focus. And for all but the most conservative investors (those who really can't afford to risk any capital, ever), dividend-paying stocks are a great way to generate income right now. As two of our subscribers pointed out, interest rates on fixed-income instruments are unbearably low.

John Buckingham, editor of The Prudent Speculator, brilliantly explained the advantages of dividend payers in the latest Dividend Digest:

"Clearly, equity investors must steel their nerves for heightened levels of volatility, especially as the European sovereign debt crisis remains front and center, growth in stronger economies like China and Germany has slowed and recent economic statistics in the U.S. have been far from robust, but relative to Treasuries, dividend yields are as attractive as they've been in 50 years. Aside from several months at the height of 2008-2009 Global Financial Crisis, the last time the yield on the S&P 500 was above the yield on the 10-year Treasury was 1958. And the big plunge in both interest rates and equity prices on October 3 moved the forward yield on the S&P closer to the 2.8% yield on the 30-year Treasury! What's more, corporations have actually been boosting their payouts as more than half (258) of the S&P 500 members have either raised or initiated a dividend this year."

He continued, "It is nice to see the renewed interest in income, as we can't forget that dividends and their reinvestment have long been a substantial contributor to the total return on equities. Data from Morningstar going back to 1927 show that through the end of last year, the income component of total return amounted to 41% for Large-Cap Stocks, 35% for Mid-Cap Stocks and 31% for Low-Cap Stocks. More importantly, our own analytical work going back 20 years and numbers we've crunched from Eugene T. Fama and Kenneth R. French dating to 1927 find that dividend payers have actually outperformed non-dividend payers over the long term and they have done so with lower volatility! Not quite the Holy Grail, but higher returns with lower risk is obviously a winning combination."

Hard to argue with that. So, assuming that our subscribers aren't the only investors looking to generate more income from their portfolios, I've chosen five great dividend-paying stocks from the latest issue of the Dividend Digest to tell you about today.

The most conservative, for investors whose priority is capital preservation, is an electric utility, recommended by Dennis Slothower in the October issue of Stealth Stocks. But even though this utility is a defensive play, you're not giving up any yield in exchange for safety--the current quarterly dividend of 25 cents yields a generous 5% per year.

"If you must be long a stock, as we transition from the early contraction phase to a middle contraction phase, I recommend utilities, which tend to be a defensive sector in a contraction. I recommend Duke Energy Corporation (DUK), which is an electric utility company, paying a solid 5% dividend. The stock hit a new 52-week high in a solid uptrend. Look for a pullback to the $19 range or perhaps lower to buy this company. Projection: According to my numbers, DUK should be selling in the $40 range. It is currently trading around $20; so DUK has large upside potential. Place a sell stop at 25% below your entry price. As the stock rises, continue to raise your stop so that you are trailing the Friday close by 25%."