Some investors are getting cold feet as stocks’ price-to-earnings valuations have risen to historically high levels.

But with unprecedented support from the Federal Reserve, moves to value stocks from growth stocks have fizzled quickly, and it may happen again this year.

Tom Plumb, CEO of Wisconsin Capital Management and manager of the Plumb Balanced Fund PLBBX, +0.03%, isn’t buying the pro-value arguments. The fund, which is rated five stars (the highest) by Morningstar, typically has 25% invested in bonds or other fixed-income securities, with the rest in stocks.

Unlike many balanced funds, the equity portion isn’t focused on low-volatility stocks, dividend stocks or other value-oriented selections. It is aggressively invested in large-cap growth stocks, as is the three-star Plumb Equity Fund PLBEX, +0.10%, which has doubled over the past five years, beating the 78% return of the S&P 500 Index SPX, +0.11%.

The bond component of the Plumb Balanced Fund is meant to reduce the portfolio’s volatility. Plumb recommends investors who can tolerate higher levels of volatility go with the Plumb Equity Fund.

“I know everyone is concerned about P/E ratios,” Plumb said in an interview Jan. 21. If the Federal Reserve continues its “moderate” interest-rate policy and stimulative actions, “high P/E growth stocks, that can be justified by their growth, will continue to be leaders of the market.”

In February 2019, Plumb spoke about a market of “haves and have-nots,” with the favored category of companies generating tremendous cash flow on recurring revenue streams. He pointed to software-as-a-service, through which Microsoft MSFT, +0.62%, Adobe ADBE, +0.49% and other tech giants have smoothed out their sales and greatly improved earnings and cash flow.

Almost a year later now, Plumb says “the dichotomy is getting wider and wider.”

“The companies taking in a lot of cash because of their disruptive business models and technologies and their focus on how money is spent and where it is spent, are showing no signs of abating,” he said.

He expects the average price-to-earnings ratio to continue to increase and the current large-cap, high-P/E stocks to continue to lead the market.

Plumb said eventually the current trend will reverse, “likely through some political action, or something by the Federal Reserve.”

Rising price-to-earnings ratios

The S&P 500’s forward price-to-earnings ratio (based on consensus earnings-per-share estimates among analysts polled by FactSet for a rolling 12 months) is 18.6, its highest level since June 2002, aside from a short period in early 2018:

This move has led Apple AAPL, +0.48%  to be removed from the S&P 500 Value Index, as its forward P/E has risen to 26.7 from 20.5 three months ago and 13.2 a year ago.

Plumb’s math

Plumb emphasized the importance of analyzing stock valuations “in terms of what your alternatives are.”

He pointed out that at the end of 2019, the yield on 10-year U.S. Treasury notes TMUBMUSD10Y, +0.25%  was 1.92%. So we can use that 1.92% as our risk-free rate or discount rate. We can also express the valuation of the 10-year note by dividing 100 by the yield, for a price-to-earnings ratio of 52.1.

At the end of 2019, the S&P 500 Growth Index, had a trailing price-to-earnings ratio of 27.4, according to data supplied to Plumb by Bloomberg. So by those valuations, the S&P 500 Growth Index traded for 53% of the 10-year note.

At the end of 1999, the trailing P/E for the S&P 500 Growth Index was a tech-bubble-inflated 44.7, according to Bloomberg. The yield on 10-year Treasury notes was 6.44%, for a P/E of 15.5. So by those valuations, the S&P 500 Growth Index traded for 288% of the 10-year note.

Two out of three

Plumb compared stock selection to running a bond portfolio. If you are convinced that interest rates are headed lower or are going to remain stable, you might as well hold longer-duration bonds to receive more interest. The same can be said of growth stocks over value stocks.

Plumb considered three interest-rate scenarios: Declining interest rates, stable rates and rising rates.

“For two out of three, you want the longer-duration and long-tail investments. That, to me, means growth rather than value,” he said.

Further emphasizing the importance of growth over value, Plumb said: “No company that is in your index funds, and leading by market cap, got there because they were a value play. They got there because they grew.”

Individual stocks

In February 2019, Plumb discussed four individual companies. On Jan. 21, 2020, he shared his updated thoughts about those and comments about two more. All are held by the Plumb Balanced Fund and the Plumb Equity Fund, except for Boeing BA, +2.84% :

Disney

Plumb said Walt Disney DIS, -1.26% has addressed concerns about “unbundling,” or cord-cutting by cable- and satellite-TV subscribers, which reduces revenue for ESPN and other Disney content channels. By pricing its new streaming services very low, “they are sacrificing short-term growth to build a long-term revenue stream.” With so much library content, continuing success with new movies and other content and ESPN, Plumb believes Disney will be very competitive “with different streaming packages segmented to different market universes.”

PayPal

PayPal PYPL, +2.07% ended 2019 with a total return of 29%. However, the stock was down 12% from its late-July high. “They have been making a lot of strategic investments around the world,” heading into the end of PayPal’s five-year separation agreement with eBbay EBAY, -0.78% in July. PayPal expects revenue from eBay customers to extend a decline.

Plumb said he expects PayPal “to continue to stay relevant” by developing Venmo and other cash-transfer services. He cited “strategic investments,” including one in MercadoLibre MELI, +0.03%, the ecommerce company based in Argentina.

Adobe

Adobe ADBE, +0.49% is transitioning to software-as-a-service, and Plumb calls the company “one of the main beneficiaries of the dynamics of the digital transition and disruption going on in corporate America.” He said the company’s document cloud business had doubled in three years and cited a statistic that’s precisely what he is willing to pay a high P/E for: “Cash flow from operations is over 30% of revenues.”

Boeing

Plumb said he sold the two funds’ shares of Boeing BA, +2.84% in March. He is confident the company will put the problems with the 737 Max behind it, but sees “no reason to hold it” at this time.

After Boeing’s management indicated it would take until mid-2020 for the 737 Max to be approved to fly again, the shares fell as much as 6% on Jan. 21, with trading temporarily halted.

“They run the risk of annoying the regulators by anticipating when they will be approved. They will not be able to play by the old rules,” Plumb said.

Long term, “they do have this oligopoly position and an incredible barrier to entry because of how capital-intensive the business is,” Plumb said, adding: “If we talk five years from now, we will say at some point we should have bought Boeing.“

Microsoft

“The evolution of Microsoft MSFT, +0.62% is nothing short of remarkable,” Plumb said, focusing on the evolving software-as-a-service business model.

“And now they substitute company investment in computer centers by moving our systems to the cloud,” he said. So he expects a long runway for rapid sales growth. “The September 2019 first [fiscal] quarter earnings report indicates that their equivalent to backlog was $89 billion, up 25% from September 2018.”

Tyler Technologies

Tyler Technologies TYL, +0.09% automates operations systems for public-sector customers. “The public sector is one of the largest and most decentralized information-technology markets in the United States,” Plumb said, “with an estimated $18 billion a year in spending.”

Tyler is the largest player in the space, he said, with annualized sales growth of 16%, earnings growth of 23% and free-cash-flow growth of 27% over the past eight years. “And as they move to cloud and subscription services, 65% of their revenues are recurring,” Plumb said, while adding that “their gross margin has advanced 50% over the last 17 years as this model has evolved.”

Semis stocks are blazing higher.

The SOXX semiconductor ETF, whose top holdings include Taiwan Semiconductor and Intel, has risen 4% this month and touched record highs for three sessions in a row.

Matt Maley, chief market strategist at Miller Tabak, says momentum could take the group higher, though one technical indicator is making him nervous.

“You are getting quite overbought,” Maley said on CNBC’s “Trading Nation” on Wednesday. “It’s now at a 61% premium to its 200-week moving average. There’s only one other time that it was at more of a premium to that average since the credit crisis.”

The SOXX climbed more than 73% above its 200-week moving average in March 2018. From that peak to a trough in December 2018, shares declined by more than 27%.

“Also, if you look at the weekly [relative strength] chart, it’s right at a level here that has been followed by significant or fairly decent pullbacks in the group several times in the past,” said Maley.

Maley notes that it’s not the worst overbought conditions he’s ever seen so it could still peak above this from a historical standpoint. In 2000, for example, semis got to a 260% premium to its 200-week moving average with its relative strength index above 89. An RSI measure above 70 typically suggests overbought conditions.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, is also skeptical the rally in semis can roll on.

“Chips are trading very much on ‘hope-ium’,” Schlossberg said during the same segment. “Shorting momentum is very dangerous, but having said this at this point if you look at AMD which is the poster child for the whole sector, it’s trading [265] times trailing earnings. That’s a great company, but the stock is essentially set up to fail.”

On a trailing earnings basis, Advanced Micro has not been this expensive since mid-2018. The SOXX, by comparison, trades at 28 times trailing earnings.

“I do not want to chase stocks at this level. I think the danger of a pullback right now is extraordinarily high,” Schlossberg added.

The rise of the cloud has been one of the best investment themes of the last decade. What started out as little more than a buzzword among techies has grown into a massive industry, hauling in hundreds of billions of dollars a year worldwide. A quick look at the First Trust Cloud Computing ETF (NASDAQ:SKYY), which tracks an index focused on the accelerating cloud computing industry, shows that cloud stocks are collectively up 200% since the fund’s inception in July 2011.

In spite of their fast rise, though, cloud stocks will likely continue as a prominent driver of investment returns in the next decade, serving as a key ingredient in the “digital transformation” of many organizations as they update operations for the 21st century. This guide will help get you started selecting the best of the many dozens of pure-play cloud companies available to invest in.

What is “the cloud”?

So what is this high-in-the-sky technology term actually referring to? In simple terms, the cloud is a global network of data centers. These remote servers are used to deliver a service or complete a task for a user via the internet or other network. Functions of these data centers are diverse: They store data, run applications like email and business software, operate social networks, and deliver services like streaming TV. Generally, there are four methods by which the cloud is delivered to end users.

• The public cloud refers to a cloud service that shares resources with other users and is generally available over the internet. Basic email services and Netflix (NASDAQ:NFLX) are common examples of offerings hosted on a public cloud service that many consumers make use of on a daily basis.
• The private cloud, by contrast, isn’t shared. It’s usually a data center located on a company’s property that provides services via a closed network rather than making them available via the public internet. Many nontech companies that are updating operations to a digital format are building on-premises data centers to create a private cloud, using hardware from the likes of Cisco (NASDAQ:CSCO), Arista Networks (NYSE:ANET), NVIDIA (NASDAQ:NVDA), and Micron (NASDAQ:MU).
• A hybrid cloud refers to a service that uses a mix of public and private clouds to function. For example, an organization might make use of public networks to access and operate less critical data and operations but automatically switch over to its private network when the data reaches a certain level of sensitivity.
• A community cloud is one generally shared between businesses and organizations — for instance, a data center that is shared by various arms of the U.S. government. A community cloud could help organizations make better use of their resources and make it easier to operate in tandem on joint projects.

Organizations are making use of the cloud in myriad ways, but no matter the type of data center, all of them are still on the rise after a decade of busy construction activity.

A brief history of the cloud

The concept of services being stored remotely and available on demand is nearly as old as the concept of the internet itself, but it wasn’t until the 1990s that the term “cloud” actually came into use in the tech world. An early pioneer of the concept was salesforce.com (NYSE:CRM), which was founded in 1999 and was the first software application developed from scratch to run in the cloud. In 2002, Amazon (NASDAQ:AMZN) quietly launched its cloud service, dubbed Amazon Web Services, or AWS. The e-tailer hit on the concept of renting out its excess computing power to businesses and quickly became a leader in the cloud movement as a result.

Since the late 2000s, a flood of cloud businesses has come online. However, the marketplace is dominated by several big players, such as Amazon’s AWS, Microsoft‘s (NASDAQ:MSFT) Azure, IBM‘s (NYSE:IBM) Cloud, and Alphabet‘s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google Cloud. Across the Pacific, Alibaba (NYSE:BABA) and Tencent (OTC:TCEHY) are leading the charge in China’s fast-growing cloud industry and are also an important part of the conversation.

Different parts of the cloud

Just like different layers of the atmosphere, there are layers to the cloud, too. Generally, cloud services are split into three tiers. Some companies offer just one tier of service, while larger companies often span two or all three.

Infrastructure-as-a-service

The first tier and the base for all cloud offerings is infrastructure-as-a-service (IaaS). IaaS provides the nuts and bolts for a business wanting to operate in the cloud. An IaaS provider offers the actual server space for storage, computing, networking, and security. Notable IaaS companies include Amazon, Microsoft, Google, IBM, and VMware (NYSE:VMW). Companies that don’t operate their own cloud infrastructure host their services on another company’s IaaS.

Platform-as-a-service

Many tech companies tout their software “platforms.” Sometimes this is a generic term for their overall suite of software, but as it pertains to the cloud, a platform-as-a-service (PaaS) enables software developers to build, manage, and deploy applications. PaaS is built on top of an IaaS service, and many of the abovementioned IaaS providers also operate as a PaaS as well. Some software providers, like Salesforce for example, offer a PaaS in addition to SaaS (see below), as they allow developers to custom build apps using a set of tools. Another notable example of a PaaS is communications company Twilio (NYSE:TWLO).

Software-as-a-service

Built on top of IaaS and PaaS is the end result of the cloud, the applications themselves. Companies that operate and sell software applications are known as software-as-a-service (SaaS) providers. SaaS outfits build and provide ready-to-use apps for a wide variety of both business and consumer tasks. Often the most visible part of the cloud to everyday consumers, notable SaaS apps many people run daily are Netflix and Spotify (NYSE:SPOT) for entertainment and Microsoft Office 365 and Salesforce on the business productivity end of the spectrum.

Why you should invest in the cloud

The cloud is massive and growing fast

The cloud has grown to epic proportions in relatively short order and has become a driving force behind technological advancement. According to researcher Gartner (NYSE:IT), global public cloud spending should come in around $266 billion in 2020, up from $228 billion in 2019. When considering the entire realm of cloud computing, research from Statista and CenturyLink (NYSE:CTL) expects general global cloud spending to top $400 billion in 2020.

Digital transformation — a phrase describing the wave of businesses and organizations using data center-based computing to update their operations — is expected to fuel double-digit growth in cloud spending for the foreseeable future. Gartner’s report expects global spending to increase by 13% a year in both 2021 and 2022. Fellow researcher IDC thinks spending will more than double by 2023 and top $500 billion.

The cloud is evolving

Someone in a business suit holding a tablet with an illustrated brain made of electrical connections hovering above, signifying artificial intelligence.

Business analysts and economists generally think the 2010s were the first half of the cloud’s development and that the 2020s will be phase two of the computing concepts’ rapid global deployment.

As it gets bigger, though, it is playing a role in the advance of other technologies. Edge computing, for example, is the move to push computing from the cloud to locations closer to the end user — either at smaller localized data centers or within devices themselves. Edge computing is quickly becoming a new category for cloud providers as they try to speed up the computing and data delivery process and is on its way to being worth tens of billions of dollars a year. The cloud is also powering applications like artificial intelligence as businesses use data centers to train and then deploy AI-based systems. Over the next decade, these could be powerful investment trends to watch that the cloud is making possible behind the scenes.

Types of cloud stocks to invest in

IaaS and PaaS investing

For those who want a comprehensive cloud portfolio, IaaS and PaaS providers are the place to start. Incidentally, even though IaaS and PaaS are already covered by some of the largest stocks around — Microsoft, Amazon, Alphabet’s Google, Alibaba, even Facebook (NASDAQ:FB) and its PaaS for advertisers — these building blocks for cloud-based services are expected to be the fastest-growing segments of the cloud. Gartner expects annual IaaS and PaaS spending, which came in at $40 billion and $32 billion, respectively, to nearly double by the end of 2022. As large, diversified tech giants, these companies can make up the core of an investment portfolio.

Not to be forgotten, though, are the hardware companies that make cloud infrastructure and platform services possible. Hardware must exist before applications can be built. Arista Networks and NVIDIA are two of the largest companies in this space, but investors who want to broaden their search even further should look for companies categorized as “network hardware, storage, and peripherals.” The best bets will have business segments labeled as “cloud” or “data center” revenue, with those segments at least keeping up with the double-digit average growth forecast.

SaaS investing

Now on to the software itself. SaaS is the largest portion of the cloud pie, making up nearly half of annual spending in 2019 per Gartner. As the largest chunk, it is also, on average, the slowest-growing segment, expected to “only” increase 50% by 2022 and top $150 billion a year.

Within this massive subset of the industry, though, are an overwhelming number of options. For every nontech company, there is a SaaS that can help (or disrupt) the industry — from retail to finance to healthcare. Here are a few examples by sector.

Retail/consumer products

• Shopify (NYSE:SHOP)
• Adobe (NASDAQ:ADBE)
• HubSpot (NYSE:HUBS)

Financials/business management

• Square (NYSE:SQ)
• Anaplan (NYSE:PLAN)
• Workday (NYSE:WDAY)

Services

• The Trade Desk (NASDAQ:TTD)
• Okta (NASDAQ:OKTA)
• Splunk (NASDAQ:SPLK)

Communications

• Twilio (NYSE:TWLO)
• Zoom Video Communications (NASDAQ:ZM)
• DocuSign (NASDAQ:DOCU)

Healthcare

• Veeva Systems (NYSE:VEEV)
• IQVIA (NYSE:IQV)

How to decide which cloud stocks to invest in

There is no shortage of cloud stocks to choose from, but choosing which ones to own is the real trick. For the well-established, large, and profitable cloud companies, traditional valuation metrics still apply. For smaller firms operating at little or negative profitability, some business and revenue growth metrics are the best indicators to consult.

Profitability metrics

Many investors look at price-to-earnings multiples (the stock price divided by earnings per share from the last 12 months) when selecting a stock, but that metric only tells part of the story. In the high-growth cloud computing industry, the PEG ratio can be more helpful, as it accounts for elevated price-to-earnings multiples by comparing to expected growth rates.

Another profitability metric to weigh is price to free cash flow. Free cash flow is revenue minus cash operating expenses and capital expenditures. Unlike basic earnings, free cash flow excludes noncash items like depreciation, amortization, and stock-based compensation and thus provides a clearer picture of a company’s true profitability profile. For example, Salesforce currently has a sky-high price-to-earnings ratio of 173.8, but price to free cash flow values it at 39.6. Using price to free cash flow makes quite the difference here and would indicate Salesforce isn’t all that bad a deal for a company that has consistently been able to grow over 20% year-in and year-out.

Business metrics

Traditional methods of valuing a stock often break down when evaluating the cloud industry — especially the fastest-growing SaaS providers. When a company is expanding fast and sees ample opportunity ahead, profits are often foregone in lieu of reinvestment for rapid growth.

Fortunately, business growth metrics provide an alternative method. Growth in total users or customers can be telling. Is customer count accelerating? Then quickly rising expenses might be an acceptable situation. Is customer count decelerating? If so, expense growth should also be falling.

Another key component is the dollar-based net expansion rate, sometimes called the revenue retention rate. This metric shows investors how much money the average existing customer is spending on a cloud service. A rate of less than 100% implies the average customer is spending less than a year ago (not good), while greater than 100% implies they are spending more. If customer count is decelerating, a dollar-based net expansion rate over 100% means a cloud company can afford to add customers at a slower pace. For example, cloud communications firm Twilio reported dollar-based net expansion of 132% in Q3 2019, implying existing customer spending jumped an impressive 32% higher compared to the year prior.

Revenue growth metrics

All of those business metrics ultimately feed into revenue, the headline figure that investors watch when it comes to the cloud. Increased revenue, however, is only good if it translates into increased profits — or at least the promise of an eventual bottom-line payoff.

• Gross profit margin. The first thing to look at is gross profit margin — or what’s left after the cost of providing a service is subtracted from revenue, listed as a percentage of total revenue. For cloud companies, gross margins of 70% or higher are the norm. And generally, as a smaller cloud outfit adds customers and new sales, gross margins should increase. A falling gross margin might indicate that the company has cut its pricing to entice new customers (a red flag that competition might be growing) or that the company is expanding into less lucrative lines of business. New, lower-margin opportunities, however, could improve gross profitability over time as they in turn add new customers.
• Operating expenses. After gross profit, operating expenses are next — comprised of sales and marketing, research and development, and general and administrative costs. If a company is growing quickly, marketing, research, and increasing headcount must be paid for. Short-term run-ups in costs might occur if a company is investing in growth. Over time, though, operating expenses should be growing more slowly than revenue does. If a company is consistently growing operating expenses faster than revenues — or if operating expenses are higher than revenue — over the long term, alarm bells should be ringing.
• Price-to-sales ratio. Revenue growth, gross profit, and operating profit all feed into the price-to-sales ratio — a company’s market cap (number of shares outstanding multiplied by share price) divided by trailing-12-month revenue. The higher the number, the more expensive a stock is. While this metric is highly subjective, it can be used to compare one stock to the next. However, just choosing the lowest price-to-sales ratio doesn’t cut it. A higher price-to-sales ratio might indicate a stock is overvalued; or the premium might be justified if revenue is growing faster than that of peers, and new additional revenue is increasing in quality (higher gross margins and falling operating expenses).
• The rule of 40. One more subjective growth measure worth using is the rule of 40, outlined nicely by fellow Fool.com contributor Taylor Carmichael — especially for high-growth businesses that operate at little to no profit. The rule is simple: Add revenue growth rate to a company’s net profit margin (adjusted for noncash items, like outlined above for free cash flow). Any result under 40 is a pass, and the more consistently a company can keep a score of 40 and above, the better.

How to purchase the highest-growth cloud stocks

Whatever your findings may be when searching for high-growth cloud companies, it’s important to remember that stocks such as these tend to be very volatile — both up and down. Therefore, diversify your holdings, keep individual positions small, and add to them periodically — monthly, quarterly, or on the dips, perhaps whenever a stock dips by a certain percentage (like 10% from recent highs). Consistency is key, as is some patience with small companies that are in expansion mode and tend to bounce around a lot in value.

Don’t forget the long term

Above all, remember that investing in the cloud is all about the long game, whether the companies owned are large or small. The industry has had a lot of success, and there’s plenty more to come. The 2020s should provide more strong returns for the cloud, so don’t get too hung up on what happens in the short term, and remember that investing results play out over years — not days, months, and quarters.

Dividend stocks give shareholders the best of both worlds. Not only can you receive regular income quarter after quarter, but you can also enjoy the benefits of share-price growth when the companies you invest in perform well fundamentally.

There’s an elite group of dividend stocks that have built up long track records of delivering dividend increases year in and year out. Among them, some stocks are quite predictable about when during the year they’re most likely to announce a new dividend hike. Today, we’ll look more closely at Coca-Cola (NYSE:KO), Kimberly-Clark (NYSE:KMB), and Walmart (NYSE:WMT) to see why you can expect to see some dividend action in the near future.

Fizzing over with dividend growth

Coca-Cola has one of the most impressive dividend growth streaks in the market, with annual increases dating back for 57 straight years. The beverage giant’s stock currently yields 2.9%, with its most recent dividend increase having come in March 2019 and amounting to an almost 3% rise over its previous payout. Investors now receive $0.40 per share each quarter.

Coca-Cola’s brand is known around the world, and it’s proven that it can answer the call to adapt to changing consumer preferences. In particular, as consumers sought healthier alternatives to sugary carbonated beverages, Coca-Cola answered the call with a mix of bottled waters, juices, and low-sugar soda products. In addition, smarter packaging decisions that included smaller portion sizes appealed to shoppers while boosting the company’s profits. Coca-Cola already pays out a high percentage of its earnings, so future increases might be on the small side. But with the company typically announcing dividend increases in February, investors can expect at least a slightly higher payout soon.

Cleaning up for investors

Kimberly-Clark is a major player in the consumer products space, with offerings that include Kleenex tissues and Huggies diapers. The company sports a 47-year track record of annual dividend increases, with a current yield of 3% and quarterly payouts of $1.03 per share. Kimberly-Clark last boosted its payout in March 2019, adding $0.03 to its previous $1 per share dividend.

Investors expect Kimberly-Clark to announce its full-year earnings results on Jan. 23, and that’s traditionally been when it’s announced higher dividend payments as well. Fundamentally, Kimberly-Clark has had to deal with significant challenges, as fierce competition and a strong U.S. dollar have weighed on its results. However, there’ve been signs lately that Kimberly Clark is poised to fight back, especially on the international front, and that could help it restore some of its former glory. If CEO Mike Hsu and his management team can reaccelerate revenue gains, then Kimberly-Clark could deliver a more impressive dividend hike that last year’s $0.03.

A store full of dividends

Finally, retail colossus Walmart needs no introduction. The company’s network of retail department stores has no equal, and its emphasis on low prices has resonated with consumers for half a century and will continue to do so well into the future. Walmart has also been a good pick for dividend investors, as it’s put together a 46-year streak of rising annual payouts. The last increase came last March, with a 2% boost to $0.53 per share on a quarterly basis. The stock currently yields 1.8%.

That dividend yield might seem low, but it largely reflects the big increase in Walmart’s stock price recently. Investors have gotten far more comfortable with the retailer as it has demonstrated an ability to fight on the e-commerce front while also remaining true to its conventional brick-and-mortar customer base. Innovations like in-store pickup have also helped keep Walmart in the game, and even as the retail industry evolves toward new ways of doing things, Walmart has what it takes to avoid getting left behind. Based on past experience, Walmart shareholders can expect to hear about a little something extra in their dividend check sometime in February.

Look for higher dividends

It’s never a sure thing that a company will boost its dividend. But for Walmart, Kimberly-Clark, and Coca-Cola, rising dividends are a tradition that the three companies will be hesitant to break. That bodes well for income investors looking for a bit more from their portfolios in 2020.

CNBC’s Jim Cramer on Wednesday laid out a group of big-name stocks that are worth buying at current levels, even as investors contemplate whether the overall market is reaching a top.

The major indexes were practically flat in Wednesday trading but remain near their highs. He laid out a case for owning Apple ahead of its quarterly report, Netflix and IBM, the latter two having reported quarterly a day prior.

“They explain how you can justify believing in a couple of high-profile stocks and how it’s not all that much of a leap of faith when you consider the pros as well as the cons,” the “Mad Money” host said. That’s what “makes me a believer. It’s why I don’t want to leave this market … even as I’d often like to try.”

Apple

Apple shares have more than doubled to almost $318 since trading at $153 a year ago. Cramer sees more positive trajectory in the stock on the back of its iPhone 11 and wearable devices. He is betting that the company can surprise Wall Street when it reports earnings next week. Analysts estimate roughly $88.4 billion in sales for the quarter.

“We just got word that Apple’s raised its semiconductor orders for the new phone, and the accessory business is on fire because of the love for the AirPod Pro, which I can personally attest are extraordinary,” he said. “In other words, after spending a long time in the humdrum wilderness, Apple might finally be a growth stock again.”

Netflix

Just last year, Cramer was uncertain about how Netflix would match up against increasing competition in the streaming space as Disney rolled out Disney Plus. The host even talked about kicking the name out of the fabled ‘FAANG’ group of tech stocks.

Cramer’s sentiments have changed, especially in the wake of Netflix’s earnings call Tuesday when he heard more about CEO Reed Hastings’ focus on artificial intelligence to defend its place in the market. The host called AI Netflix’s “secret sauce” over rivals and found solace in its global growth, despite it having subscriber challenges in the domestic market.

“Netflix knows what you want before you want it,” he said. “Many companies claim they have AI ability. Netflix changes your life, or at least your viewing patterns.”

The stock fell nearly 4% Wednesday, on soft guidance in its quarterly report, and is virtually unchanged from a year ago. Cramer said Netflix shares are “overvalued” when considering its earnings prospects, but he thinks global growth justifies its $143 billion market capitalization.

IBM

IBM ended a quarterly streak of year-over-year declines and topped estimates when it reported fourth-quarter earnings Tuesday. Cramer applauded the company’s cash flow numbers, mainframe business and contribution from Red Hat, the open-source software business it acquired last year.

With the stock trading at roughly “10 times earnings [with a] 4.5% yield, I think IBM represents a decent investment for as long as that mainframe cycle keeps working,” he said. “Sure, IBM still has several faltering divisions. … Eventually, the company will have trouble meeting estimates, next year perhaps, when the mainframe cycle peters out, although it shows no signs of slowing now. It’s getting aggressive, it’s getting better. I like it here.”