Archives for June 2011

3 Model Portfolios to Consider

“I don’t have time to invest in individual stocks.”

This is a common saying I hear. A part of it is certainly true- most people simply don’t have time to spend many hours per week researching companies and tuning their portfolios.

But there’s a middle ground. Investors can, in addition to their passive funds, own a concentrated, diversified portfolio of individual stocks that:
1) They understand
2) Are low maintenance
3) Constitute good long-term holdings

And here are three examples of this sort of portfolio. I don’t necessarily recommend every company, and specific selections would be based on what companies an individual is bullish on, but they get the point across.

Portfolio 1

Company Ticker Dividend Yield
The Coca Cola Company KO 2.85%
Canadian National Railway CNI 1.73%
Berkshire Hathaway BRK.B 0.00%
Abbot Laboratories ABT 3.67%
Exxon Mobil XOM 2.36%
Compass Minerals CMP 2.45%

Average Portfolio Yield: 2.18%

Portfolio 2

Company Ticker Dividend Yield
Colgate Palmolive CL 2.70%
McDonald’s Corporation MCD 2.89%
Automatic Data Processing ADP 2.76%
Cincinnati Financial CB 5.62%%
Chevron Corporation CVX 3.11%
Novartis NVS 3.94%

Average Portfolio Yield: 3.50%

Portfolio 3

Company Ticker Dividend Yield
Intel Corporation INTC 3.91%
Phillip Morris International PM 3.89%
Realty Income Corp O 5.21%
Exelon Corporation EXC 4.93%
Johnson and Johnson JNJ 3.46%
Kinder Morgan Energy Partners KMP 6.38%

Average Portfolio Yield: 4.63%

Benefits of Ownership

The benefits of owning individual stocks are many.
-You keep yourself aware of business events and the economy.
-You ensure that you become and remain financially literate.
-You have a solid part of your portfolio in companies that you understand.
-You derive passive income from investments across many sectors.
-You get to vote in matters of those businesses.

Disclosure: I am long KO, ABT, XOM, CVX, and JNJ.

5 Dividend Payers with 50+ Years of Dividend Growth

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A lot of dividend growth investors tend to be particularly attracted to the lists of dividend achievers, aristocrats, champions, and for good reason. A company that has enough staying-power, enough discipline, and enough success to consecutively increase regular annual dividends for decades can provide a strong psychological advantage to both investors and management. A long history of success is not necessarily an indicator of future performance, but a company’s culture and economic advantages can become apparent by studying such lists.

Some companies go above and beyond even the most impressive of lists, and attain records of consecutive dividend growth that exceed 50 years. Presented below is a non-exhaustive summary of some of the top dividend payers that have managed to consecutively raise annual dividends for half of a century or more, and that may have bright futures.

Dover Corporation (DOV)
Dover Corporation is a collection of businesses that produce, manufacture, and market engineered components and systems. The company business strategy is to make attractive acquisitions, acquire cost savings from integration, and then to grow their companies organically and internationally. The balance sheet is modestly strong, future business growth looks solid and is projected to be robust, but the dividend yield is on the low side for dividend investors.
I recently published a full analysis of Dover.

Dividend Yield: 1.73%
Earnings Payout Ratio: 27%
Most Recent Quarterly Dividend Increase: 5.7%

Emerson Electric (EMR)
Emerson is an engineering conglomerate, providing automation technology, process management systems and services, network power, climate technology, and appliances and tools. They provide important technical services to companies around the world, that is of a steadier and more developed variety than the more cutting-edge technology services of other tech industries. The company has a fairly strong balance sheet with moderately low debt and a healthy interest coverage ratio, but quite a bit of goodwill. EPS growth is expected to be substantial as the company continues to rebound from the worldwide financial crisis.

Dividend Yield: 2.58%
Earnings Payout Ratio: 48%
Most Recent Quarterly Dividend Increase: 3.0%

Procter & Gamble (PG)
Procter and Gamble is one of the most well-known blue chip companies to invest in. PG is a worldwide consumer products company, with 23 billion-dollar brands and 20 half-billion-dollar brands. The company has a larger scale and stronger economic advantage than most of their competitors, and spends more money on consumer research than perhaps any other business. Cash flow is impressive, the balance sheet is modestly strong, and the dividend yield is fairly significant.
I recently published a full analysis of of Procter and Gamble.

Dividend Yield: 3.36%
Earnings Payout Ratio: 55%
Most Recent Quarterly Dividend Increase: 9.0%

Cincinnati Financial Corporation (CINF)
Cincinnati Financial Corporation is a diverse insurance company, with a presence in over 30 states, and a substantial dividend yield of nearly 6%. According to the company, if an investor would have purchased a share of the company in 1957 and held through 2005 reinvesting all dividends and keeping all share splits, the investor would have 2,146 shares in 2005. This number must be closer to 2,600 or so by now, based on a rough calculation. The company is notable for having substantial stock exposure in the portfolio. The company holds approximately $3 billion in common stock, mostly consisting of dividend-paying companies and distribution-paying partnerships. This is in addition to the $9 billion market value of their bond holdings. CINF is targeting 12+% annual book value growth through 2014. A downside to the company is that their dividend growth has been irregular and minuscule since 2008. The company has not yet boosted the dividend in 2011 over 2010 levels, but I suspect that they will provide at least a token increase to preserve their legacy of dividend growth. The dividend yield, however, is the highest on this list.

Dividend Yield: 5.69%
Earnings Payout Ratio: 70%
Most Recent Quarterly Dividend Increase: 0%

3M Company (MMM)
3M produces capital goods for companies and consumers. The company makes products for consumers and office businesses (think Scotch tape and Post-It notes), displays and graphics (films, reflective materials, projectors, and so forth), communications (adhesives, splicing, and various products), health care, transportation, and safety. 3M offers this diverse assortment of products that are essential and provide a lot of the smaller aspects for larger systems. In terms of debt levels, goodwill, and the interest coverage ratio, 3M has a very strong balance sheet.

Dividend Yield: 2.40%
Earnings Payout Ratio: 38%
Most Recent Quarterly Dividend Increase: 4.8%

Full Disclosure:
As of this writing, I own shares of PG and EMR.
You can see my full list of individual holdings here.

Weekend Reading 6/26/2011

Dividend Stocks 101: The Essential Guide
If you’re new to the site, check out this key resource.

Five Conference Takeaways for Investors
A Morningstar video presenting wide commentary on the markets and various asset classes.

McDonald’s Analysis
Dividend Growth Investor analyzed the blue chip McDonald’s. The stock meets his entry criteria.

UGI Corporation Analysis
D4L analyzed this utility and rated it a 3-star hold.

Wal-Mart Analysis
Defensiven analyzed Wal-mart, and has a favorable review of the stock.

Is Your Portfolio Fragile?
Sigma Swan reminds readers of the benefits of having an emergency fund in addition to cash available in a portfolio.

Defense Stocks on Sale?
Dividend Mantra outlines some defense companies with low valuations.

Putting Your Expenses Back in Context
Intelligent Speculator shows quantitatively how important every dollar is today.

Carnival of Financial Planning 189
My Coca Cola analysis was included in a blog carnival at Free Money Finance.

Buy To Own Investing
Compounding Returns shares a view on buy and hold investing.