Monday, January 3, 2011

Dividend Machine Watsco, WSO

Watsco, an HVAC (heating, ventilation & air conditioning) wholesaler, will warm your coffers with their 3.3% dividend yield that has increased every year. Watsco is number seven of the fifty two dividend machines that I will profile for your income investing portfolio.

One of the challenges of the cash flow strategy is to make sure you diversify your income investments.

We income investors can get just as greedy as the growth folks. We chase yield. Those of you who want to minimize tax on income can pick stocks in master limited partnerships that pay seven and eight percent dividend yields, but if all of it is in MLP's believe me someday you will suffer from lack of diversification. Maybe you have it all in municipal bonds and if you do, you already have seen the risk in that trade.

Today's opportunities are in dividend producing companies; but unless you invest carefully, you can end up with a bunch of large pharmaceutical companies or a bunch of utilities. Anytime you are concentrated in only one or two industries, you increase your investment risk. Look, we all would like to have a 30 year 8% government guaranteed bond but that opportunity does not exist today so we have added risk and invested more into equities than we ever thought we would.

Therefore, a smaller company that pays a dividend similar to a large company, one that has increased their income and dividend through thick and thin is a company we want to own. I have already profiled a few smaller companies like MCHP and I think Watsco symbol WSO is one you should consider.

WSO earns $2.37 per share and pays us $2.08 per share. Based on the closing price 12/31/2010 of $63.08, the yield is 3.3%. This company has virtually no debt with a D/E ratio of .03. If you bought this company in 2005, you would have received $.62 per share and today your shares would be creating $2.08. Did your salary go up that much since 2005?

Watsco is a company worth looking at.

Very Truly Yours,