Dividend Stocks for the Long Run

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.

I will be tracking the following portfolio versus the market using marketocracy virtual mutual funds.

Disclosure: Author has 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,

Comments

[Dividends4Life:]

Very good read. A well allocated dividend based portfolio should out-perform the market over the long-term.

D4L

2008 Dec 16 11:05 AM

[notsosmart:]

how is peg?

2008 Dec 16 12:28 PM

[Stargazer:]

Awesome list! Thank you for taking the time and effort to post this.

2008 Dec 17 01:15 AM

[BlueOkie:]

How do you diversify, meaning what measure? Stock price or dividend amount? Do you equal weight the stocks or do you follow the S&P 500 weighting? Equal weighting has proven to outperform the overall market recently because it underweights the financials. What do with your dividends? Do you return it to the individual stock thru a DRIP or consolidate all your dividends and then make a purchase? How do fees and taxes enter into your buying decisions?

2008 Dec 17 10:58 AM

[long_on_oil:]

Great post, I will bookmark this article. Anyone managing their own IRA or 401k should appreciate this article. Keep up the good work.

2008 Dec 17 12:47 PM

[tipalia:]

great tool at uor disposition now, thanks a lot. I can t believe all the garbage I see in those comments. Some are never and will never be satisfied on this planet. They should have landed on another planet.I would advise them to start their own world somewhere in the space and then we would all be happy. Thanks a lot for this posting Dividend Growth Investor.

2008 Dec 17 01:29 PM

[Jimmy Lathrop:]

I have had many clients and colleagues express an interest in getting into the market and I will be forwarding this article as a great starting point to investing in the coming years.

2008 Dec 17 01:37 PM

[jackooo:]

With this years inflation at 5.3% you present a foolish list of dividends. After taxes we average even less.
I do agree about buying only stocks that pay a dividend though. I have learned that well in my 50 plus years in the market.
One other learning experience is never give your money to a mutual fund that you have to pay charges to year after year. You can guess as good as them and save the fees.

2008 Dec 17 02:08 PM

[Gina:]

I've just become a fan of dividend reinvesting, but I have two questions. I'm only using mutual funds/etf's and want to know whether they work as well. And I only have five years until retirement - is that long enough to get any benefit or should I just take the divident in cash?

Jan 27 11:10 AM