Monday, February 2, 2015

Six Quality Dividend Companies For Long Term Investors

My goal as an investor has always been to find those companies that are built to last. Those are the quality businesses, which possess some sort of a moat around them, that allow them to earn high returns, grow profits and dividends over time. Those are defensible businesses, which do well through most phases of the economic cycle. I believe that each of those businesses below will be around in 20 – 30 years, selling a similar type of goods and services to its clients. If they maintain their moats, chances are they will compound my capital and income for several decades. I could then live off that growing income, reinvest the excess back, and never have to sell shares to pay my expenses during the next bear market. My only goal is to avoid overpaying for these shares. Unfortunately, everyone knows that those businesses are good quality ones, with predictable earnings and revenues. Therefore, I had to pay close to full fair value on a few of them. However, I remind myself the words of Buffett that it is better to buy a good business at a poor price, rather than a poor business at a bargain price.

The companies I added to last week include:

McCormick & Company (MKC) manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to retail outlets, food manufacturers, and foodservice businesses. It operates in two segments, Consumer and Industrial. This dividend champion has managed to increase distributions for 29 years in a row. The ten year dividend growth rate is 10.20%/year. Currently, the stock is selling for 20 times forward earnings and yields 2.20%. Since this is a retirement account purchase, I will likely reinvest dividends in this stock. Check my analysis of McCormick

PepsiCo, Inc. (PEP) operates as a food and beverage company worldwide. This dividend champion has managed to increase distributions for 42 years in a row. The ten year dividend growth rate is 12.50%/year. Currently, the stock is selling for 19.60 times forward earnings and yields 2.80%. Check my analysis of PepsiCo.

Kimberly-Clark Corporation (KMB), together with its subsidiaries, manufactures and markets personal care, consumer tissue, and health care products worldwide. It operates through four segments: Personal Care, Consumer Tissue, K-C Professional, and Health Care. This dividend champion has managed to increase distributions for 43 consecutive years. The ten year dividend growth rate is 8.20%/year. Currently, the stock is selling for 18.80 times forward earnings and yields 3.10%. Check my analysis of Kimberly-Clark.

Johnson & Johnson (JNJ), together with its subsidiaries, is engaged 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 king has managed to increase distributions for 52 years in a row. The ten year dividend growth rate is 9.70%/year. Currently, the stock is selling for 16.10 times forward earnings and yields 2.80%. Check my analysis of Johnson & Johnson.

Baxter International Inc. (BAX) develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney diseases, trauma, and other chronic and acute medical conditions. This dividend stock has managed to increase distributions for 8 years in a row. The ten year dividend growth rate is 13.20%/year. Currently, the stock is selling for 15.20 times forward earnings and yields 3%. Check my analysis of Baxter.

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. This dividend champion has managed to increase distributions for 32 years in a row. The ten year dividend growth rate is 9.80%/year. Currently, the stock is selling for 12.50 times forward earnings and yields 2%. Check my analysis of Chubb Corporation.

Full Disclosure: Long all companies mentioned above

Relevant Articles:

Dividend Growth Stocks are Compounding Machines
Let dividends do the heavy lifting for your retirement
Dividend Kings List for 2015
How to never run out of money in retirement
How to be a successful dividend investor

12 comments:

  1. DGI,
    Nice picks. I spent a couple of hours researching CB this weekend as a possible addition to my portfolio. I had MKC is the past, but sold when I switched to index funds. Wish I had kept; it's a great company.

    I am long BAX and KMB, plus added to JNJ and PEP in the last couple of weeks. I have been watching KMB drop and might add shares today; $108 is a fair price in an over priced market.
    Be blessed,
    KeithX

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  2. Great article! However, Buffett's actual quote was "it is better to buy a good company at a fair price rather than a poor company at a bargain price".

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  3. I like Chubb a lot but wouldn't touch it at current valuation. Insurance companies are better valued based on multiple of book value and 1.4 times book is too rich for my blood. A great one for the watchlist though. Keep the great ideas coming. You sometimes turn me on to things I've never even considered.

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  4. All great stocks but be careful at what prices you establish positions or add to them.

    Baldy 2000

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  5. I have been interested in adding AFL whose valuations and long term dividend performance seem attractive. I'll take a peek at Chubb.

    PEP, JNJ and KMB seem a bit pricey at current valuations but I did start a small postion in JNJ recently.

    Thanks again for the articles.

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  6. JNJ is probably my favorite from your list. Did you look into UL recently? It shows better fundamentals than PG (and maybe KMB as well).

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  7. DGI,

    Great companies across the board. A few them look a bit expensive to me, but you can't argue the quality.

    Best regards!

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  8. Johnson and Johnson is on my watch list. Hopefully, I will find a good time to take initial position soon.

    Cheers,

    BeSmartRich

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  9. Hi DGI,

    Just wanted to say that your blog introduced me to dividend growth stocks several years ago and I am so glad I discovered this style of investing. Also, just wanted to say that I love your criteria to purchase stocks.

    I also purchased KMB last week and have been waiting for a while for JNJ and PEP to become a little cheaper.

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  10. All great solid long term dividend paying stocks that belong in pretty much any long term portfolio. I happen to have four of the names mentioned with MKC on my watch list. Thanks for sharing.

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  11. I just want to give a shout out to DGI. I started reading this blog about 5 months ago and finally decided to take the plunge and start saving money back to put into a Roth IRA. I just completed my first purchases last Friday, and am now a proud owner of CAT, OKE, T, MCD, and EMR. I feel that I got into some great companies at even greater valuations. It feels great to pick and choose what companies I want to be a part of instead of just throwing it all into index funds like I do through my employee sponsored 401k. Keep up the wonderful work!

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  12. I like your approach and completely agree with you. But I also buy riskier high yield stocks and then take their dividends and reinvest into a different more conservative companies. So I buy MLPs, REITs or BDCs for this purpose and use their dividends to buy stocks like KMB, PEP, CAT, or JNJ. Works well so far.

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