In his book, Stocks for the Long Run, Wharton Professor Jeremy Siegel proves that stocks have been the best performing investing for the past 200 years in the US. Equities outperformed other assets classes such as gold and fixed income. Typically, stock returns are derived from price appreciation and dividends. Dividend payments have historically accounted for 40% of the average annual stock market return. A lesser known fact is that reinvested dividends have provided for 97% of historical stock market returns.
During tough market conditions such as the 2008 bear market, investors realize the positive of getting a return on your investment even if prices are collapsing across the board. Add in dividend increases, and several years down the road the income off the initial investment could be producing sizeable returns. Generalizations like this are usually ignored by investors however, as it doesn’t really provide a clear plan for action.
In order to respond to this I have included the best dividend stock for the long run. They come from many sectors and industries, and represent growing as well as maturing industries. The portfolio is not a recommendation to buy or sell any stocks, as it reflects my specific financial risk tolerance. Always do your own research before initiating a position in any financial instrument.
Consumer Discretionary
FDO Family Dollar Stores (analysis)
MCD McDonald's Corp (analysis)
MHP McGraw-Hill Companies (analysis)
SHW Sherwin-Williams (analysis)
VFC VF Corp (analysis)
Consumer Staples
CLX Clorox Co (analysis)
KO Coca-Cola Co (analysis)
CL Colgate-Palmolive
KMB Kimberly-Clark (analysis)
PEP PepsiCo Inc (analysis)
PG Procter & Gamble (analysis)
SYY Sysco Corp (analysis)
WMT Wal-Mart Stores (analysis)
ADM Archer Daniels Midland (analysis )
HRL Hormel Foods Corp.
Energy
CVX Chevron Corp (analysis)
XOM Exxon Mobil (analysis)
BP British Petroleum (analysis)
Financials
AFL AFLAC Inc (analysis)
CINF Cincinnati Financial (analysis)
STT State Street Corp (analysis)
CBSH Commerce Bancshares (analysis)
CB Chubb Corp. (analysis)
Health Care
BDX Becton, Dickinson
JNJ Johnson & Johnson (analysis)
MDT Medtronic, Inc
Industrials
MMM 3M Co (analysis)
EMR Emerson Electric (analysis)
GWW Grainger (W.W.) (analysis)
ITW Illinois Tool Works (analysis)
TFX Teleflex Inc (analysis)
UTX United Technologies (analysis)
DOV Dover Corp. (analysis)
Information Technology
ADP Automatic Data Proc (analysis)
Materials
APD Air Products & Chem (analysis)
VAL Valspar Corp (analysis)
NUE Nucor Corp. (analysis)
Utilities
ATO Atmos Energy Corp
ED Consolidated Edison (analysis)
BKH Black Hills Corp.
Typically dividend investors are being told to hold stocks in certain sectors such as energy trusts, utilities and financials. I do believe however that concentrating ones portfolio only on certain sectors does increase your risk. Chasing current dividends yields is seldom the best plan for action. Overweighting certain sectors might also be a recipe for a financial disaster. Maintaining a balanced approach that focuses on dividend growth and yield, as well as the traditional tools like diversification and dollar cost averaging, could be the best strategy for the long run. Furthermore being flexible could also aid to your portfolio. Chances are that new sectors of the economy will emerge over the next few decades. Adding reasonably priced dividend achievers is one way to be involved in those stocks.
The dividend stocks for the long run portfolio is underweight in technology and telecommunications services, and overweight the Consumer Staples and Consumer discretionary sectors. It only contains one foreign based stock, BP. The average yield is 3.45%, whle the average five year dividend growth rate is 15.90%. If the long term dividend growth rate stays at 6% on average for the whole portfolio, the expected yield on cost will be around 7% in 12 years and 14% in a little over 2 decades. You could also check it from this link.
I will be tracking the following portfolio versus the market using marketocracy virtual mutual funds.
Full Disclosure: I have positions in ADM, ADP, AFL, APD, BP, CINF, CLX, ED, EMR, FDO, GWW, ITW, JNJ, KMB, KO, MCD, MHP, MMM, NUE, PEP, PG, SHW, STT, TFX, UTX, WMT,
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Tuesday, December 16, 2008
Best Dividends Stocks for the Long Run
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16 comments:
DGI,
Can you tell me how you calculated yield on cost in 12 and 20 years?
"7% in 12 years and 14% in a little over 2 decades"
As I understand it, total return = average yeild + dividend growth rate
Very Complete List.
Its missing a few that i would add.
ABT - Abbot
MSFT - Microsoft (plenty of cash on hand, 0 debt)
Hmmm...I have KO, CL, KMB, PG, WMT, BDX & JNJ. Some of those names interest me a lot, but I still view them as rather expensive in comparison to where I would like to initiate a position.
Good post though - there are a number of those stocks I haven't checked in on in a while that may be of some reasonable value.
Brian,
I am using the rule of 72. If my growth rate is 6% per year forever, then my dividends would double in 12 years. Using a starting yield of 3.45%, in 12 years that comes out to 6.90-7%. In 12 more years at 6% growth, your yield on cost rises to 14%.
By yield on cost I mean the following:
You buy a stock for $100/share. In 2008 you get 3.50/share in dividends. Your current yield and yield on cost are 3.5%. In 2020 you receive $7/share. Your yield on cost is 7% on your cost of $100.
Bill,
I will be bullish on MSFT in 5 years, when they become a dividend achiever.
As for ABT it looks interesting, but the yield growth/balance does not seem as attractive as other non pharma stocks.
Nurse,
I own more than 35 dividend stocks. Some are on hold ( GE, MO) and have no further adding, while others I add to..
Very comprehensive post, thanks.
As a retiree with a similar strategy, I'd only add that I favor those payers who increase their dividends faster than inflation. Fortunately, in the current environment, mosst qualify. If we hit hyper-inflation in a year or two, things will get more interesting for this strategy.
Thanks for the list. Here's a little fact I like to share, and it proves your point. McDonald's is now paying a 25% annual dividend - for those investors who bought back in the 1990-91 time period.
Sorry - I don't care how good the dividend or the growth rate on Hormel is - I just can't invest in Spam!
BP is one of my favorite stocks. They pay a hefty dividend and have growth potential in the energy industry. Analysts never seem to mention BP. Exxon, ConocoPhillips and Chevron garner all the attention.
excellent list of companies.
Thanks.
Txs for the list. Yes, helpful and informative. My only suggestion is to include a few more international picks such as DEO (UK), VOD (UK) and NSRGY (Nestle, Swiss). These are not only world market leaders, but great dividend growth stocks. When the dust settles, MFC (Can) may also turn out to be a world leader in insurance.
I would also recommend looking at some Dividend paying ETFs, like PFF, which invests in preferred stocks and is paying over 11% right now.
There is a also very conservative options strategy called a "collar strategy" where you hold a stock (or an index) and sell covered calls against it, and use the money from the calls to buy "insurance" using puts. I’ve been doing a lot of research into using this strategy. It looks like a very good conservative strategy. While you can "roll this yourself", it’s a lot of work. I have found 2 ways to have somebody else implement this for me. One is a service: http://www.swaninvesting.com/ and requires a large investment ($400K), and the other is a closed-end fund (traded on the NYSE): Eaton Vance Risk Managed Diversified (symbol: ETJ). Currently ETJ pays almost 10% dividends, which can be reinvested, but because it is a closed-end fund, it can trade either below, at, or above it’s Net Asset Value.
--joe
Very cheap right now - high divs:
APL
GNK
DSX
I am mostly interested in companies that pay a stable, sustainable dividend as opposed to current high yield stock which is in danger of cutting its payment to shareholders.
OK...given your stated goals, what is your approach to pruning and trading up positions within a sector? For example how do you compare such growing utilities as CPL (Brazil), and HNP (China) against your current portfolio choices? The power consumption in growing, emerging markets is 2X the GDP and the yield is right up there with your choices and arguably exceeds it.
Robert,
It's tough to evaluate international stocks which don't have a long history of raising their dividends. As I have stated above I do not chase yield. A 10% current yield is not appealing to me if it is not coupled with a long history of dividend increases and sustainability of the dividends. An increasing EPS over the past decade is important too
Hi Dividend Growth Investor,
I wanted to thank you for putting up such a great list. I have only recently become interested in investing myself and dividend investing really seems to me like the way to go.
I was wondering what you thought about the an energy company like Royal Dutch Shell.
Thanks,
Rocky
Thanks for this list; I'm a bit surprised that MO isn't on this list; I am beginning with a similar strategy, and it forms the core of my portfolio.
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