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The next top 10 shares

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by Peter Switzer

Two days ago, I promised to look at my second top 10 stocks for my portfolio. Excuse me for being old fashioned but I like to get rich slowly, which means I don’t get too many rude shocks when asset prices endure a crash of 2008 proportions.

My underlying strategy is to buy great brand name companies that generally pay healthy dividends. History shows that if you look at the long-term rewards from shares, around 50 per cent of those returns come from dividends.

Therefore, it makes sense to buy shares with a great track record of paying dividends. If you decided to do the opposite, you would have to select companies with enormous capital gain potential and that would mean you were treading down a riskier, get richer or get poorer fast path!

That’s not my go.

Top 10 revisited

The other day, my top 10 companies were:

Commonwealth Bank
Westpac
NAB
ANZ
BHP-Billiton
Rio Tinto
Telstra
Woolworths or Wesfarmers
Westfield
QBE
Coca-Cola Amatil,

Now, I know there were eleven, in fact, 12 if you count the double choice of Woolworths or Wesfarmers, but I can’t help over-delivering!

Nine more make 20

Now for my next 10. Here I will try to get some more balance into the portfolio but I am still driven by dividend. Remember this, if I can average around four to five per cent for dividends, then that’s like the average return from having your money in safe, fixed deposits. With shares, however, you have the added benefit of potential biggish capital gain.

So here they are. Remember I have already given the 11^th, which is the first stock in my second top 10 and that was Coca-Cola Amatil. Now for the rest:

AMP
David Jones
Foster's Group
GUD Holdings
IRESS Market Technology
Monadelphous
Woodside
Newcrest Mining
Macquarie Group.

All in the mix

I have thrown Woodside in to have more exposure to oil and gas and Newcrest to get some glittering gold in the portfolio. And Macquarie is a big name speculative play because they’re pretty damn smart at Mac Bank.

Generally I go for big names, but for the sake of dividends I have thrown in GUD, IRESS and Monadelphous as the guys at Lincoln Indicators, who were on my Sky News Business Channel show this year, have identified them as good, solid companies, which are good dividend payers.

Some big names such as News have been left out because of low dividends and some good speculative stocks such as Fortescue miss out on a dividend and absolute safety factor.

Also some great dividend payers such as Shakespeare McMillan and IMF could make my next ten but they don’t pass the big brand test. They are, however, good, small companies.

Keep an eye out

So, there it is, my top 20 for now. Remember, you can do the old 'buy, set and forget' strategy and you can do OK but it’s ideal to review your portfolio from time to time and rebalance it as share prices, dividends and other changes happen.

Best of luck with your share playing and let’s hope for a great year on the market in 2010.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, December 17, 2009