One produces massive profits thanks to premium pricing, another is riding a wave of demand thanks to technology innovation, and the third is enjoying significant demand thanks to an improving economy. Are these stocks right for your portfolio?
Invest In What You Know
Todd Campbell (Apple Inc.): A great lesson to learn early on in your investing career is to invest in companies you understand and that sell products you use and love. Personally, I think it's hard to come by a company that meets that criteria better than Apple Inc.
Apple enjoys die-hard loyalty among consumers, and that loyalty translates into envy-inspiring (and profit-friendly) pricing power. Its iPhone commands nearly 14% market share, its iPad is the top-selling tablet, and its computers are among the most desirable out there. As a result, Apple's sales were nearly $53 billion and its net income was about $11 billion last quarter.
This success has allowed it to accumulate more than $250 billion (yes, billion) in cash. That cash, plus a steady stream of money flowing in every quarter, is fueling investor-friendly share buybacks, which boost earnings per share, and dividend payments, which can increase an investor's total return. Last quarter, Apple returned $10 billion to its shareholders, and recently, it increased how much it will return to investors over time by $50 billion, including a 10% increase to its dividend.
If you think innovation will continue to drive demand for Apple products in the future, then a top-shelf balance sheet and 1.7% dividend yield make it hard to argue against this stock being a core holding -- and perhaps, the first holding -- in any college graduate's portfolio.
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Put This Tech-Savvy Stock In Your Pocket
Dan Caplinger (Intel): College graduates have grown up with technology all their lives, starting on PCs and then migrating to mobile devices. Intel has played a major role in both of those key markets, and although it got a slow start in making its transition from the PC world to join the mobile revolution, the chipmaker has picked up the pace recently. Intel has worked hard to use its strengths to build more of a presence in mobile, including taking advantage of its manufacturing prowess and focusing on modems for mobile devices. Yet it will also be important for the company to maintain its dominance of the PC chip arena, especially as cloud computing initiatives raise demand for data servers based on older architecture.
From a dividend perspective, Intel offers a 3% current dividend yield and a solid history of past payout growth. Since early 2015, Intel has made three increases to its quarterly payout, including its most recent 5% boost in March. With earnings that are roughly double what Intel pays in dividends, the company has room for further increases in the future. As college graduates move into the workforce, they'll get a firsthand look at how Intel will continue to compete against other major chipmakers to grab its share of a growing industry.
Invest In The Gig Economy
Rich Smith (Kforce): If you're a recent college graduate, chances are you're looking for a job right about now -- or maybe you've found a job? Perhaps even a temp job?
More often these days, jobs in our "gig economy" are of the temporary variety, performed by independent contractors working on their own behalf or facilitated by a temporary staffing company such as Kelly or Kforce. In fact, according to an NBC News report late last year, 94% of the net job growth in America between 2005 and 2015 was in the category of alternative work -- meaning jobs other than full-time with benefits and a lifetime pension. So, if you're a recent college graduate, you're probably all too familiar with companies like Kforce.
But have you ever considered investing in a company like Kforce?
Now that you've got a paycheck, this might be a good time to start buying what you know, because whether you know it or not, Kforce could actually make for a very promising investment (as well as a potential source of income).
Priced at a lowly 13.7 times earnings, it doesn't cost a lot to begin investing in Kforce. In fact, I'd go so far as to describe the stock as "cheap" given that analysts expect Kforce to grow its earnings at better than 30% annually over the next five years. Plus, Kforce is the kind of investment that will immediately begin paying you back, in the form of a 2.6% dividend yield (that's a good half percentage point higher than what the average S&P 500 stock pays).
Perhaps best of all, Kforce currently earmarks less than 36% of its profits for dividends, a low payout ratio that leaves the company plenty of room to grow its dividend in years to come. If its earnings grow anywhere near as fast as they're expected to, I'd say that steady increases in Kforce's dividend are more likely than not.
This article originally appeared on The Motley Fool and was written by Todd Campbell, Rich Smith, and Dan Caplinger.