4 Top Income Stocks to Buy Now

06/26/2012 8:15 am EST


Richard Young

Editor, Young's Intelligence Report

This market isn't showing many encouraging signs, so it's important to find companies that have good news in their earnings, writes Richard Young of Intelligence Report.

A wave of new environmental regulation has been heaped on utilities. Seven major rules governing the industry have been proposed for the next six years.

A massive amount of capital expenditure will be required to bring existing systems in line with the new regulations. Rather than spend the money, many companies are shutting down their dirtiest operations.

Size gives utility companies flexibility. A small company may be forced into expensive upgrades to stay in business because it relies on too many dirty plants. Larger companies can more easily adjust.

Once its merger with Progress Energy is complete, Duke Energy (DUK) will be the largest utility in the United States. Increased scale will allow Duke to make the upgrades it needs with greater flexibility. After the merger, Duke will serve 7 million customers across six states. The combined company will also have the nation's largest generating capacity, 57.2GW.

Today, Duke yields 4.4%. With 85% of its post-merger operating earnings from regulated operations, Duke has a stable income stream with which to pay future dividends. My price chart shows Duke's strong breakout above its post-recession high of $22.06/share. Buy.

Union Pacific (UNP)
In 1968, legendary blues man Taj Mahal recorded "She Caught the Katy," about a woman who left him by hopping on the Katy, a nickname for the Missouri-Kansas-and-Texas railroad.

The Katy's rails were the first laid by the Union Pacific Railway Southern Branch back in 1865. Today, those lines make up a key corridor for Union Pacific, which owns 31,900 route miles and 8,200 locomotives.

UNP is the nation's largest chemical transporter, and one of its largest intermodal carriers. My relative strength chart shows UNP's strong outperformance compared with the market for the last five years. Buy.

United Technologies (UTX)
This is a contrarian pick. United Technologies has been hammered lately, with Fitch downgrading UTX's debt to A from A+ on May 22. I see this as a buying opportunity for UTX, which now yields 2.7% and owns a bullpen of strong businesses that include Otis, Sikorsky, Pratt & Whitney, and Carrier, just to name a few.

UTX shares have taken a hard fall. Buy them while they are cheap.

Coca-Cola Company (KO)
Some brands are so strong that, in a twist, companies must prove their own commitment to the brand.

On March 9, the Coca-Cola Company was forced to put out a press release explaining why it had asked some of its suppliers to slightly alter their production of caramel coloring. Customers thought the company was changing the Secret Formula, and they became incensed.

Coke was simply avoiding a new labeling law from California, not changing its soda recipe. But the incident illustrates how invested consumers are in the brand. They actively police it. That's true brand loyalty.

Are those consumers going to buy RC Cola or Sam's Choice? Doubtful. That's the power of branding. Over the last five years, KO has developed a strong trend compared with the market. Today, KO yields 2.8%. Buy.

Related Reading:

Contractual vs Hypothetical Income

Get Ready for a Slew of New MLPs

5 Good Starts When Looking for Income

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