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Best Dividends Stocks for the Long Run

Tuesday, December 16, 2008



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.


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,

Source: Dividend Growth Investor

About the author:

Dividend Growth Investor
Visit Dividend Growth Investor http://www.dividendgrowthinvestor.com

Visit Dividend Growth Investor's Website


Rating: 2.6/5 (23 votes)

Comments

madbulk
Madbulk - 5 years ago
Why did you opt away from the stock he singled out as the most productive of them all -- Altria?
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
MO has the small but incalculable risk that one day a court judgment can put them out of business.

Is that likely? No. Is it possible? Yes.

We've had a lot of 'Black Swan' events this year proving that they can happen even if the chances seem very remote.

mahmutpasha
Mahmutpasha - 5 years ago
I just bought some MO for the first time today. I will need to get some PM too. I also like PFE for the dividend purpose and some WMT in mid to low 40's for dividend and growth.
ssj4six
Ssj4six - 4 years ago
My portfolio has only four dividend stocks - CCE(1.6%), DUK(5.7%), FL(4.5%), and MMM(3.8%). I don't know much, but I know that I need over 1,000 shares of each stock to collect somewhat ok payments for age 65. Problem is, I'm 36 now :( and 29 years doesn't seem like alot of time to get a total of 4,000 shares. Can someone help me out with some advice?
cm1750
Cm1750 premium member - 4 years ago
I like PM vs. MO as the legal risks are lower and growth is higher.

Basic math is long-term EPS growth of a conservative 7-8% (mgmt says 10-12%) and a dividend of almost 5% gives you a 12-13% IRR for the next several years assuming the current 12.5x forward P/E holds. Not a huge return, but likely much better than the overall market.

I also like PEP, PG, NSRGY for long-term appreciation/dividend growth.
Sivaram
Sivaram - 4 years ago


SSJ4SIX: "Problem is, I'm 36 now :( and 29 years doesn't seem like alot of time to get a total of 4,000 shares. Can someone help me out with some advice?"

I'm just a newbie like you and I'm a contrarian so take what I say for what it's worth. My view is contradictory to the conventional advice from portfolio advisors and dividend-oriented investors.

I would not invest in companies for dividends, especially if you have a really long time-frame. Your portfolio from this point in time is likely to be determined by capital gains and capital losses rather than dividends. The situation may be different if you were investing 20 years ago or 20 years from now.

I say this because dividend yield right now (for the whole market, not your stocks only) is very low by historical standards. Most of the studies that purport to show dividends as the holy grail of investing involve markets where the dividend yield is much higher.

The S&P 500 dividend yield is something like 2% right now whereas the long-term average is something like 4.3%. An average investor's returns from dividends are likely to be far lower than anything the history books show.

So, just be careful.

Having said all that, to get back to your question, do keep in mind that you will be saving money over time and it will grow. Even if you go with some bearish estimate of future returns (dividends plus capital gains), say 6% rather than the bullish 10%, your money will grow. If you compound that over 20 or 30 years, it will be a much bigger sum. So if you own, say, 100 shares now, it'll be worth more like 800 shares in 30 years.

A very, very, crude rule I use is that a typical person's portfolio will double 3 times in your life. This rule of thumb works much better if you started investing in your 20's than the 30's but, even then, it gives a rough idea of what you can expect. Try working backwards to see how much money you need to save every year to get to your goal.

To sum up, if you think you need 4000 shares in 25 or 30 years, that may be the equivalent of owning 1000 now (or at least saving enough over a period such that it is equivalent to 1000 now.)
scanlin
Scanlin - 3 years ago
There are many high yielding stocks that also make good covered call candidates. In my opinion, writing calls that are 5 weeks or less in duration and 5-10% out of the money each month is a great way to make your portfolio pay extra dividends 12x per year.

For example, for the stocks in this thread, right now you can do these:

BP: buy at 38.47, sell Sep 40 for 1.24; Annualized Return If Flat = 36.5%

ADM: buy at 29.88, sell Sep 31 for .53 (plus ex-div Aug 17 for .15), ARIF = 25.4%

ITW: buy at 42.79, sell Sep 45 for .45, ARIF = 21%

SHW: buy at 68.22, sell Sep 70 for .95, ARIF = 21%

Your if-called returns would be even higher. The above returns are assuming the stock is unchaned from today to expiration.

MikeS

http://www.borntosell.com

covered call investment tools

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