Whether you are new to dividend investing or you are a seasoned pro, it's likely that your main goal is to build a long-term portfolio that generates consistent income over time with as little volatility as possible. That said, over the next few weeks we will continue publishing our 10-part series which should help you build your own 6% DIY Dividend Portfolio for 2013.
In part 1, we highlighted the investment plan and strategy for the portfolio and parts 2-10 will highlight each sector in the S&P 500, including high-rated stocks with in each sector that you should consider for your portfolio. Below is a schedule of the entire series. Please make sure to "follow" us so that you will be notified when each new article is published.
- Part 1: Introduction / Investment Plan & Strategy
- Part 2: Consumer Staples
- Part 3: Utilities
- Part 4: Healthcare
- Part 5: Consumer Discretionary
- Part 6: Financials
- Part 7: Technology
- Part 8: Industrials
- Part 9: Materials
- Part 10: Energy
Like most "defensive" sectors, the Consumer Staples sector has significantly outperformed the S&P 500 over the past 5 years, with a total return of 43.2% (vs. a 10.3% total returm fot the S&P 500).
More importantly, the sector was also much less volatile than the broader market. We often look at maximum drawdown (peak-to-trough decline) to help us quantify the downside risk of an investment. While the S&P 500 declined over 55% during the 2008 recession, the maximum drawdown for the Consumer Staples sector was a much more modest 32% (see chart above).
Higher total returns with less downside risk...what's not to like about the sector.
That said, below is a list of some of our top-rated Consumer Staples dividend stocks. Note that our composite rating ranges from 0 (lowest) to 99 (highest).
All of the stocks on the list above have a current dividend yield of at least 2.2% and a 5-year beta under 0.50. Also, all of these stocks have significantly outperformed the S&P 500 over the past 5 years (on a total return basis). The tables below highlight some of the key data points that we analyze when ranking our dividend stocks.
Wal-Mart Stores (WMT) currently has our coveted "99" overall Parsimony ranking, which is the highest ranking in our system. Wal-Mart is one of the best dividend growth stocks of all-time and it is a member of the S&P 500 Dividend Aristocrats club (which have all followed a policy of increasing dividends every year for at least 25 years). Wal-Mart has delivered shareholders a 62% total return over the past five years, and it has increased its dividend at a compound annual rate of 13.5% over that period. In addition, the company still has a very modest payout ratio of 31.9%, so it has plenty of room to continue to increase its dividend in the future.
Hormel Foods (HRL) carries our highest rating for Dividend Track Record (99) and it is also a fellow member of the S&P 500 Dividend Aristocrats. Hormel recently announced its 47th consecutive annual dividend increase, raising its annual dividend to $0.68 from $0.60 (a 13.3% increase). Over the past 5 years, the company has delivered shareholders a 75% total return, and it has increased its dividend at a compound annual rate of 14.4% over that period. Like Wal-Mart, the company also as a very modest payout ratio of 30.3%, so it has plenty of room to continue to increase its dividend in the future.
General Mills (GIS) has the highest Risk/Reward Profile ranking (92) of the five stocks highlighted above. GIS has delivered shareholders a 65% total return over the past five years, and it has increased its dividend at a compound annual rate of 11.0% over that period. In addition, the stock has the lowest beta (0.17) of the group, with a very nice dividend yield north of 3.0%.
Kimberly-Clark (KMB) is also a member of the of the S&P 500 Dividend Aristocrats (are you seeing a trend here???). KMB has the highest dividend yield (3.5%) of the five stocks mentioned and a very respectable 5- and 10-year dividend growth rate of 7.0% and 9.5%, respectively. The stock has also been on fire the past 12 months, with a total return of 24.5%.
To say that Colgate-Palmolive (CL) is a stable long-term dividend payor is an understatement. According to the company's website, CL has "paid uninterrupted dividends on its common stock since 1895". Needless to say, the company is also a member of the of the S&P 500 Dividend Aristocrats club. Over the past 5 years, the company has delivered shareholders a 52% total return, and it has increased its dividend at a compound annual rate of 12.0% over that period.
Any DIY Dividend Portfolio should include several stocks from the Consumer Staples sector. Stocks in this sector tend to be stable dividend payors with low relative betas, which will help dampen overall portfolio volatility.
In Part 2b of this series, we will highlight our specific "Buy Zones" for each of these stocks, so please make sure to "follow" us.
Disclosure: I am long WMT.