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In Part Two of MoneyShow.com’s interview with Mo Dawoud, the co-founder of Wall St. for Main St. underscores the importance of diversification into commodities, hard assets, and dividend payers. He also likes companies that provide goods and services that people use every day.

[Read Part One of this interview, which appeared Monday.]

Kate Stalter: Let’s talk a little bit more about some of these big cap, defensive, dividend payers.

Mo Dawoud: Well in the sense of defensive dividend stocks, I think people should look at, like I said before, companies that make stuff every day.

Stocks like Costco (COST). I mean, going to Costco is cheaper, as compared to going to a regular grocery store, and their sales are doing very well over the past few years. They pay a dividend as well. Costco is one company I recommend.

As I mentioned before, John Deere (DE) makes farming equipment, and is another good stock. Since people are going to continue to eat, I mean no matter how bad the economy gets, farming will always be there and it will always be in high demand. They’re always going to need the farming equipment, so why not invest in companies like John Deere that make these farming equipment for the farmers?

Also another stock that people should look at is British American Tobacco (BTI). That’s another one of those tobacco stocks, and they supply a 2.5% dividend yield for investors. I’m not a big smoker, I don’t smoke, but tobacco is still in high demand, and the demand is always stable because people that smoke, it’s hard for them to get off, it takes a while. So the demand will always be there. I recommend tobacco stocks as well.

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Kate Stalter: Now, you had started out by really talking about some of these names as being preferable to some of the fixed-income investments, just because of the dividend yield.

Certainly, many of the advisors I’ve talked to over the last year have really been steering people towards some of the big dividend-paying equities. Do you believe, at this point, that fixed income might be something best avoided by many investors?

Mo Dawoud: It kind of depends on the investor’s risk assessment and what situation they’re in.

I mean, there is nothing wrong with dividend stocks. One of the big advantages is that it provides a constant stream of income for people that are retired. If they can’t invest in dividend stocks, what other fixed income they can look at?

Annuities have a big red flag because there is no guarantee you can get your principal back from the insurance or the bank, so I think people should stay away from that.

But unless retirees can find other stream of income, like starting your own business—which is tough nowadays in this kind of economy, because of sluggish growth and high unemployment. It’s hard to start a business in this country—The people who are retired that need fixed income, I think they should look at defensive dividend stocks. I would recommend that.

People that are willing to take more risk and have not retired, I would think they could look at oil trust funds like Kinder Morgan (KMP) for higher dividends. I mean, their dividend yield does vary depending on macroeconomics and how oil and natural gas prices fluctuate through the year. I wouldn’t be surprised if oil prices hit about $200 this year, mainly because of what’s going on in Iran.

All signs are pointing to that the US and Iran are pretty close to going to war with each other. That’s going to be very bullish for oil. People should definitely look into oil stocks for 2012 and try to get in position before something starts in Iran and the US.

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Kate Stalter: That kind of brings us back to the original question about the geopolitical, the macro, and how even though these events are all out of the control of individual investors, there is a lot we can do to potentially protect our capital this year.

Mo Dawoud: That’s why, to protect your portfolio, diversify. To diversify you can manage your risk better, and decrease your exposure to the risk to stuff that is out of our control.

A lot of what is going on in government is due to massive government intervention, unfortunately. And we have no more free-market capital in this country. It’s mostly a lot of government intervention with fiscal and monetary stimulus.

So yeah, I recommend people diversify. Don’t put everything in hard assets like commodities. Diversify to dividends—some dividends, some commodities, some other international stocks that provide products that people need every day.