Friday, March 14, 2014

10 Companies to Round Out My Portfolio

Currently my portfolio consists of 40 dividend growth stocks leaving 10 spots open before I stop.  At this point I'm fully allocated (by number of positions) to three sectors: consumer staples, financials, and telecoms.  I will not be adding additional positions to those sectors though I will obviously add new shares to the holdings I already have.

This list is not in any particular order, I like them all.

❶  Genuine Parts Company (GPC) Consumer Discretionary Sector
2.7% yield, 52% payout ratio, 58 year streak
I've been meaning to add this company for years but never did manage to get a buy in.  GPC is the epitome of a dividend growth stock with a streak approaching 6 decades.  That represents the sixth longest streak in the world.  I plan to add one more holding from the consumer discretionary sector and feel Genuine Parts is the right company for the slot.

Aqua America, Inc. (WTR) Utilities Sector
2.4% yield, 49% payout ratio, 22 year streak
I'm looking to add another utility for diversification purposes and am extremely interested in WTR.  I currently own a couple utilities (AVA, SO) and feel they are appropriate stocks for achieving my goals, but I think a water utility will be my next move in this sector.  Anyways this company has great management, a plan for future growth, and happens to sell a product that will never go away as long as the human race roams this earth.  If WTR happens to drop around $23 it would be a top candidate for new capital.

Bemis Company, Inc. (BMS) Materials Sector
2.8% yield, 53% payout ratio, 31 year streak
Bemis runs a boring packaging business.  It manufactures plastic packaging for products such as cheese, hand cream, lawn fertilizer, and medical syringes... yawn.  I think I might have fallen asleep while researching this company, but it's as steady of a business as any and continually innovates bringing new products to market.  Companies like this are right up my alley, the only thing I don't like is BMS's low dividend growth.  Dividend growth has only grown about 3.4%/yr the past 5 years.  I might consider a different company from the materials sector if I can find something better. 

Medtronic, Inc. (MDT) Healthcare Sector
1.9% yield, 32% payout ratio, 36 year streak
Great company in a great sector.  Not much to dislike about Medtronic except that it currently offers a very low yield.  As we all know, stocks prices move around a lot.  It would only take a dividend increase and a market correction to get MDT back on my radar.  If that happens I plan to jump on this stock, but I'll have to seek other opportunities for now.  I also very much like BDX from the sector, and would be happy with that one instead of MDT.

Automatic Data Processing, Inc. (ADP) Technology Sector
2.5% yield, 66% payout ratio, 39 year streak
I currently own zero tech stocks and will be looking to ADP to get back into technology.  ADP is one of only four companies that can claim a AAA credit rating.  That's a better rating than the US government!  Very steady performer here and it has an outstanding track record of above average dividend growth.  I almost added shares a few years ago when it was trading in the 50's, but in the end I failed to actually click the buy button.  This one kind of got away from me as the share price rose considerably.  It has a 2.5% yield which isn't bad at all, but the payout ratio is kind of high and the share price seems to always be over valued.  Perhaps it will trade at better valuations at some point down the road?  Probably not, I might have to just click "buy" and get it over with.

Harris Corporation (HRS) Technology Sector
2.3% yield, 45% payout ratio, 12 year streak
Harris manufactures communications equipment primarily for the US government (military).  I'm a satellite technician in the US Army and use HRS equipment all the time.  I typically shun the tech sector because I have a hard time understanding rapidly changing businesses, but I understand Harris quite well.  Anyways the uniformed services need to periodically upgrade systems and I feel HRS ought to do well over the years.  I know of new projects in the works plus I'm sure the maintenance & training contracts work to HRS's advantage.  Unfortunately the stock seems a bit pricey these days the same as the rest of the market.  No plans to get in this one just yet.

BP PLC (BP) Energy Sector
4.8% yield, 31% payout ratio, 3 year streak
BP has a very nice yield, a low payout ratio, and a reasonable stock price.  This will be my final oil stock.  It has a short dividend growth streak which can be attributed to the Gulf disaster a few years ago.  BP is back to raising dividends again.  I think it's time to look past the Gulf spill and focus on the future.  It still looks fairly cheap.

General Electric Company (GE) Industrial Sector
3.5% yield, 70% payout ratio, 4 year streak
A few years I wouldn't have considered GE, but I must say I really like the direction this company is heading.  After the well publicized dividend cut during the great recession GE came back strong.  It currently plans to spinoff part of its consumer finance business and focus more on the industrial side of the house.  Music to my ears!  I'd prefer to wait till after the spinoff before starting a position (I'd sell the spinoff shares anyways), but would consider a purchase now if the value is attractive enough.  It's getting close to my buy price as it creeps down towards $25.  Hmm...

3M Company (MMM) Industrial Sector
2.6% yield, 51% payout ratio, 56 year streak
Another high quality dividend champion that has so far eluded my portfolio.  3M is a well diversified conglomerate that has hands in a variety of industries.  This company has a long term focus and is extremely well run.  A few months ago it raised its dividend by a hefty 35%, although single digits might be a more realistic expectation for the years ahead.  I imagine that when the board of directors meet to discuss the dividend, a raise is almost automatic for 3M at this point.  The only question left is how much.  That's the sort of mentality I'm looking for.  I came close to purchasing shares last month when MMM was trading around $124.  Hopefully the market provides another chance soon.

Open Position
Ideally another healthcare or industrial stock, but I'm leaving one spot open for now.

18 comments:

  1. Now you're talking CI. My most recent purchase was China Mobile (CHL). Insider purchases of GE suggest there's some value there. BP looks like it could be good too. My next purchase, from this list, will be a water utility though. I love the idea of stable demand in a regulated industry.
    -Bryan

    ReplyDelete
    Replies
    1. I am thinking of starting a BP position soon (as in next week) if the price stays where it's at or declines. Energy stocks still seem pretty reasonable, plus I like that BP has a 10 forward p/e. Catch you later!

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  2. Fantastic group to round out the portfolio I think, with some heavy hitting dividend stalwarts in there.

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    Replies
    1. I think all of those will eventually end up in my holdings, well maybe not BMS, but it will take time. Many are too pricey right now.

      Delete
  3. You and I must be sharing the same watch list! I definintly feel like ADP, HRS and MDT got away from me last year and are outside of my buy zone, a pretty solid group of companies!

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    Replies
    1. Awesome name! I think my grandpa would know all these companies save Harris. ADP... HRS... MDT... almost bought them all. Tough to buy everything right?

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  4. CI,

    Great list. I share many on my "wish list", including - GPC, WTR, ADP, and MMM. BDX as well. I just haven't been able to buy due to valuation/yield/growth concerns that existed at one time or another. Right now, I find all of them a bit rich. I especially like the business model behind WTR (duh!), but the low dividend growth considering the yield is a bit of a turnoff. Not enough to keep me from eventually buying, but just saying.

    I think of all of them GE and BP make the most sense at today's prices.

    BMS is one I need to look into. Haven't considered it before, but perhaps that's because of the low dividend growth you cite.

    Best wishes!

    ReplyDelete
    Replies
    1. Check the forward p/e on some of those, perhaps it's not as bad as you think. GPC:17.4 / MMM:16.1 / BDX:17.0

      WTR and ADP are expensive no doubt. I would be willing to pay up for ADP (like KO or PG), but I would need it to come a bit even then.

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  5. All very attractive companies.
    I need to expand my exposure to industrials and was keeping an eye on DE, but have decided not to anymore. GE and UTX were next on my list. I havent looked at 3M that closely in the last few months...I will have to take a closer look.

    best wishes

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    Replies
    1. I was disappointed that DE didn't do a raise last month. I plan to give it some additional time to see what happens. The stock seems really cheap, but 2014 isn't expected to be a kind year for the company. Take care!

      Delete
  6. I know after your BWP sale and subsequent dividend cut you wanted to focus on the highest quality companies that you can find, even if they don't provide quite the same yield or growth profile. And each of these companies falls into that mold. I really like 3M and ADP but not at these prices. I think GE and BP represent probably the best values currently out of the group but it's a great list to round out your portfolio.

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    Replies
    1. I don't think MMM is out of the question if it goes down around 120-125 or so. You're right that I'm becoming more risk averse over time. Probably a function of seeing many risky investments implode, my portfolio growing over 6 figures, and seeing high quality do what it is supposed to do every year. I think I can achieve my goals with the MMM's, GPC's, and MDT's of the world. Will I get the highest total return? No. Will I achieve my goals? Yes.

      GE and BP probably are the riskiest of the bunch listed, but I agree they seem fairly attractive in an otherwise over priced market.

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  7. Some nice stocks here I didn't know about, so, thanks for posting it as I am adding those stocks into my watch list. I am now fully invested, but as time come and I will need a new opening, I will have more shares ready to choose from.

    I like your progress a lot, man.

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  8. I have always liked GPC but plan to purchase them during the next market panic/crash.

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  9. Hi CI!
    What do you think about American States Water (AWR). It operates on water industry and it has raised its dividend every year since 1953, quite a track record!

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