Tuesday, January 3, 2012

Best Dividend Stocks for 2012

Back in 2010 I was invited to participate in a stock picking competition. The objective was to identify the best four stocks for 2011. You can read the reasons behind my four selections in this article. The four stocks I selected included:

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. This dividend aristocrat has raised distributions for 55 years in a row. Over the past decade, Procter & Gamble has managed to boost dividends by 10.90% per year. Analysts are expecting further increases in EPS over the next two years to $4.57/share, which represents a 16.30% expected growth. The stocks yields 3.20% and is attractively valued at the moment. Check my analysis of the stock.

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. This dividend aristocrat has raised distributions for 49 years in a row. There are only eleven companies in the world, which have managed to accomplish this task. Over the past decade, Johnson & Johnson has managed to boost dividends by 13% per year. Analysts are expecting further increases in EPS over the next two years to $5.24/share. The stocks yields 3.50% and is attractively valued at the moment. Check my analysis of the stock.

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company was spun off from Altria Group (MO) in 2008, and has continued its predecessor’s tradition of raising dividends every year ever since. I like the company’s strong presence outside the US, and the fact that it has the ability to grow through acquisitions as well as by capitalizing on the rising populations in the emerging markets. Analysts are expecting further increases in EPS over the next two years to $5.21/share.The stock yields 3.90%. Check my analysis of Phillip Morris International.

PepsiCo, Inc. (PEP) engages in the manufacture, marketing, and sale of foods, snacks, and carbonated and non-carbonated beverages worldwide. This dividend aristocrat has raised distributions for 39 years in a row. Over the past decade, PepsiCo has managed to boost dividends by 13% per year. Analysts are expecting further increases in EPS over the next two years to $4.66/share. The stocks yields 3.10% and is more attractively valued at the moment relative to arch rival Coca Cola (KO). Check my analysis of PepsiCo.

Overall the four picks delivered a total return of 15.40% in 2011. In comparison, the S&P 500 returned 1.90% in 2011, all of which was due to dividends.

I believe that the stocks I selected to be great long-term holdings for many decades to come. The companies identified above are riding multi-decade consumer trends, and have strong brands that customers are willing to pay a premium for. In addition, the products that these companies produce would likely still be purchased by consumers for several decades into the future. Rapid shifts in consumer preferences are unlikely. In other words, if you like drinking Pepsi, you would keep drinking Pepsi. As a result, I would consider these stocks to also be the best dividend stocks for 2012 as well.

The performance of the other bloggers in the competition in 2011 is listed below:










Overall, I have performed very well in this competition, where I participated in 2009, 2010 and 2011. My total returns for 2009 were 26.48% and 26.08% for 2010. In comparison, S&P 500 delivered total returns of 26.35% in 2009 and 14.60% in 2010. In essence, the four picks I selected in each of the three years have outperformed the S&P 500. Whether the four picks outlined in this article outperform in 2012 is yet to be determined. Stay tuned for my next update in early April 2012.

Full Disclosure: Long PG, JNJ, PM, PEP

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This article was featured on Carnival of Personal Finance – “Ask the Right Questions” Edition

3 comments:

  1. DGI- 1st of all, congrats on the excellent returns! I have been watching the contest and look forward to CY2012!

    Quick question, how did you calculate the return of the S&P? Using VFINX (Vanguard S&P 500 Index Fund), I get a return of 0.8%, with dividends reinvested. Assumes purchase on 03-Jan-2011 and sell 22-Dec-2011.

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  2. Well it certainly is nice to have your choices echoed and verified. I hold three of the four stocks you mention in this article. Not currently holding PEP. All have been held for some time now and purchased prior to discovering your blog. Your articles have helped me to zero in on a few other keepers, turn off the noise, and focus on what I want and need in a stock. Thank you for your hard work!

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  3. Hah... great picks and I own three of the four also, but your rate of return in past competitions inspires me to go buy more of all three.

    I won't buy PM because I just can't bring myself to do it. Smoking killed my grandfather on my Mom's side of the family. On my father's side, my other grandfather was in charge of a large endowment for his alma mater and refused to put money into Altria (which cost the endowment a fortune, but he was insistent).

    Though, for those who have no qualm about it, I'm sure you're right that it will be a good payer.

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