With Mitt Romney's debate performance last week, Election 2012 has begun to swing Republican on the presidential side.
According to a recent poll by Rasmussen, in the 11 swing states Romney now leads President Obama by a slim 49% to 47% margin. Collectively, these states hold 146 Electoral College votes, or enough to determine the outcome.
Yet with two more debates still left on the slate, the truth is the fortunes of both candidates will likely swing back and forth right up to the wire.
With 27 days until voters head to the polls it's shaping up to be a photo finish.
For investors, that means next month should be volatile as traders attempt to guess the outcome.
However, the long-term results are what's really important, not only for the "big picture" economy, but for particular companies and sectors that can be expected to benefit from either an Obama win or a Romney win.
After all, there are considerable differences between the two candidates' policy prescriptions.
And as long-term dividend stock investors it is going to be crucial that we take advantage of these differences, repositioning our portfolio when we know the election result so we can optimize its performance through the new administration.
With the race still in doubt, here are 10 dividend stock suggestions from the Standard and Poor's 500 Index — five for each candidate. The selections for each candidate can be expected to do better if he wins, and should therefore be bought when the election result is known –or perhaps before the election as a hedge against your least favorite candidate winning!
The following stocks should benefit should President Obama win re-election:
- H&R Block (NYSE: HRB). If President Obama wins election 2012, it seems almost certain that taxes will rise, at least for those with incomes above $250,000 and probably for many people poorer than that. In addition, there's likely to be a mass reshuffling of allowances and tax rates, changing the best tax strategies for everyone with any complexity at all in their tax returns.
This has to be good news for tax preparers, the largest of which is HRB, both directly through their network of offices and indirectly through their TaxCut tax software. HRB has a dividend yield of 4.5%, and a historic dividend payout ratio of 60%.
- Cliffs Natural Resources (NYSE: CLF). If Obama wins, Ben Bernanke is likely to stay in office as Fed chairman, and be replaced by a like-minded successor when his term of office ends in January 2014. That means interest rates should stay low — good news for commodity stocks like CLF, an iron ore and coal producer. CLF has been generous on the dividend front, and now pays $2.50 per share, giving it a yield of 6.3%. Its historic payout ratio is about 25%, but that will increase as 2012 has been a tough year.
- People's United Financial Corp (Nasdaq: PBCT). Banks make money on the differential between short-term and long-term rates. With Bernanke at the Fed helm, this differential has been high, swelling profits for the likes of PBCT, a retail-oriented bank in New England – good Obama country.
Unlike most banks, PBCT is still paying decent dividends, and yields 5.1%. Its earnings payout ratio is high, but expected to drop going forward as the losses from 2008 recede.
- Health Care REIT Inc. (NYSE: HCN). The president's Obamacare healthcare plan will greatly increase the healthcare provision to a large percentage of the currently uninsured, which will in turn increase the demand for healthcare services.
That will benefit healthcare REITs such as HCN, which specializes in senior living and healthcare properties. HCN yields 5.0% and pays out more than 100% of its earnings, which are artificially depressed by real estate depreciation charges.
- Exelon Corporation (NYSE: EXC) This Chicago-based utility has excellent connections with the Obama administration and a large business in renewable energy. As a result, it can expect to do well from both policy and connections if the president is re-elected. EXC pays dividends of $2.10 per year, yields 5.8% and its dividends are about 88% of historic earnings.
If Romney Wins Election 2012, Buy These Dividend Stocks
On the other side of the coin, the following stocks should benefit if Mitt Romney wins:
- Lockheed Martin (NYSE: LMT) Candidate Romney has indicated that he wants to rebuild the U.S. defense capability and has outlined a fairly aggressive foreign policy. LMT is a major military aircraft and defense systems manufacturer well placed to take advantage of this. It pays $4.60 per annum in dividends, yields 4.9% and its dividend payout ratio is about 45% of earnings.
- Federated Investors Inc. (NYSE: FII) Romney has indicated that he will not reappoint Ben Bernanke, which presumably means interest rates will generally rise. That's good news for the mutual fund business, whose money market funds will once again become viable, attractive investments and whose stock funds will once again attract long-term holders seeking to fund their retirement. Federated is a major mutual fund provider that should benefit from this, and with a dividend of 96 cents/share annually yields 4.6%. Its payout ratio is about 63% of historic earnings.
- Conoco Philips (NYSE: COP) Romney has indicated that U.S. energy independence is a major goal, and COP has a large shale and tar sands business, which should benefit substantially. With a dividend of $2.64 per share it yields 4.6%. However, it pays out only about a third of historic earnings, so there's room for major dividend growth as earnings rise.
- Baxter International Inc. (NYSE: BAX). President Obama's healthcare legislation includes a substantial tax on medical devices, which Romney has promised to repeal. BAX is the highest yielding among the major medical device manufacturers, although its $1.80 annual dividend still gives it a yield of only 2.9%. However with a payout ratio of only 45% that dividend has lots of room to grow.
- Staples Inc. (Nasdaq: SPLS) Mitt Romney helped to found this office supplies chain when he was at Bain Capital; it was his first big deal. You'd better believe it would find ways to do well from a Romney presidency. With a $.044 annual dividend it yields 3.8%, but pays out only a third of earnings.
So you see, whether Romney or President Obama wins election 2012, there is always an upside to be found in the markets-especially if you know this double your money strategy.
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