Vanguard Wellesley Income Fund Investor Shares (MUTF:VWINX) is a balanced fund with a focus on quality income stocks. With the market at elevated levels, a look at the fund’s top holdings is a good starting point for investment ideas.
Wellesley Income Fund
The fund’s target allocation is 65% bonds/35% stocks, though it was slightly overweight stocks recently. That’s partially a reflection of the impressive run that equities have had this year. That said, if the market were to fall, the stocks this fund owns are precisely the type that investors should want underpinning their portfolios.
Wellington Asset Management has overseen the fund since 1970. It focuses on large-cap value stocks with above average dividends and the potential for dividend growth. The managers favor companies with low P/Es and Price to Book values, and seeks out companies with stable or improving fundamentals.
Some companies in the funds top holdings that investors should look at are:
General Electric Company (NYSE:GE)
General Electric Company (NYSE:GE) definitely falls into the improving fundamentals category. This industrial giant spent a few years in the investment wastelands as its foray into the finance industry nearly proved disastrous during the 2007 to 2009 financially led recession. However, since that time, the company has been working hard to prove it deserves investors’ trust.
The big decision was to refocus on its industrial core. To that end, NBC was sold. Not only did this give the company money to spend on the rest of its business, but it freed management from having to deal with a completely disparate industry. It recently moved to use its NBC cash to fund the pending purchase of Lufkin Industries, Inc. (NASDAQ:LUFK)
The other big move has been an effort to minimize the finance arm. While the company should have a finance arm, if for nothing else than to help customers buy its large and expensive products, it had grown disproportionately large. Right-sizing this division should do a great deal to stabilize the company’s overall business.
Yielding around 3% and once again proving it is a widows and orphans stock, General Electric Company (NYSE:GE) is worth a look for just about any investor.
Royal Dutch Shell plc (ADR) (NYSE:RDS.B)
Royal Dutch Shell plc (ADR) (NYSE:RDS.B) is a giant in the energy space, with large positions in oil and natural gas. The latter has been a drag on performance of late, as a push into the U.S. natural gas market has proven ill timed. Indeed, new drilling methods have created a glut of natural gas in this country and left the price of the commodity at historic lows.
This situation won’t last forever as demand is picking up and the low price has led drillers to pursue other opportunities. And Shell doesn’t think short term, so it is going to stick it out with this investment. In fact, it has years of experience with natural gas in Europe, so it will be ready when natural gas prices finally head higher in the United States.
Wellesley also owns Chevron Corporation (NYSE:CVX), which yields around 3%, a similarly large energy giant. Both are great companies, but Shell yields around 5.3%. That price discrepancy makes Shell a better value at recent prices.
Philip Morris International Inc. (NYSE:PM)
Philip Morris International Inc. (NYSE:PM) was spun off of Altria Group Inc (NYSE:MO) and controls that company’s impressive portfolio of brands outside of the United States. This is a huge advantage since brands like Marlboro are known the world over.
With an over 3.5% dividend yield, some might look at this as an income investment. It’s much more. While the tobacco industry in this country is mature and losing customers, Philip Morris has notable exposure to emerging markets (about three-quarters of 2012 sales) and actually saw organic volume growth between 2011 and 2012.
Emerging markets present a huge opportunity because they tend to have less restrictive regulations. Moreover, as these nations industrialize, more people are likely to start smoking. Increasing incomes will also lead to smokers stepping up to the higher-end brands that Philip Morris International Inc. (NYSE:PM) sells.
If you can handle owning a “sin” stock, Philip Morris International Inc. (NYSE:PM) offers a nice combination of yield and dividend growth potential. The constant regulatory risk that tobacco companies face might scare away the most conservative investors, but all others would do well to get to know this company.
Big and Dividends
The three companies above all provide investors with hefty yields and the potential for dividend growth in the future. They are also large and financially strong. These are exactly the type of companies that an investor can feel confident owning in good times and bad.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Chevron Corporation (NYSE:CVX). The Motley Fool owns shares of General Electric Company and Philip Morris International Inc. (NYSE:PM).