With the goal of seeking investment income through a safe dividend portfolio capable of weathering another recession, it's important to concentrate on stability without sacrificing yield. For developing such a stable dividend portfolio, it's important to take into consideration the growth of the dividends within. Established companies that are able to continuously improve their yields are often the enterprises that stand as the most attractive investments to institutional investors. Such predictability found in increased dividend yields often result with decreased volatility found in steady share prices.
The following companies were chosen for several reasons. First, each company has a market capitalization in excess of $20 billion. This decision was made in order to ensure market leadership. Second, each company has a focus on the consumer staples of everyday individuals. This measure takes a conservative approach to the market by concentrating on the products and services that people tend to depend on. Last of all, each company must have global exposure. This factor adds another layer of diversification away from a particular region, which may be subject to economic risk.
A look at the following graphic illustrates a portfolio of five proven companies and their ability to consistently raise their dividend yields. Correspondingly, these companies have seen their share prices consistently rise in a relatively tight range as seen in the chart below. All values below were taken as of January 23, 2013.
WMT data by YCharts
- Wal-Mart Stores Inc. (WMT). Wal-Mart operates as a large discount department store chain through its various brand names and has operations around the world. The company is currently the biggest private employer in the world with over 2 million employees. The company currently maintains over 10,000 retail units in over 27 countries. Wal-Mart Stores currently supports a market capitalization of $232 billion and an average forward price-to-earnings ratio of 12.92. Trading with lower volatility than the market, it currently maintains a beta of 0.38. The company offers a forward annual dividend of 2.3% with a quarterly rate of $0.398. The company maintains a comfortable payout ratio of 32% and has been raising its dividend since 1975.
- 3M Co. (MMM). 3M is a global innovation company with operations in more than 65 counties. The company is a conglomerate operating in five business segments including Consumer & Office, Electronics and Energy, Healthcare, Industrial, and Safety & Graphics. Through these segments, 3M has created products varying from tapes, to abrasives, to medical tools, to stationery, to personal protection devices, to optical film solutions, and even to coolant fluids for computers. 3M currently supports a market capitalization of $69 billion and an above-average forward P/E ratio of 14.52. The company offers a forward annual dividend of 2.4% with a quarterly rate of $0.59. The company maintains a comfortable payout ratio of 37% and has been raising its dividend since 1959.
- Johnson & Johnson (JNJ). Johnson & Johnson has been in business for 126 years, having been founded in 1886. The company has come to be known as a comprehensive global leader in its numerous healthcare businesses. The company engages in the research and development, manufacture, and sale of its various products, which address segments such as consumer products, pharmaceutical products, and medical devices. Some of the company's well known brands include Neutrogena, Johnsons, Tylenol, Zyrtec and Pepcid AC. The company currently supports a market capitalization of $202 billion and a below-average forward price-to-earnings ratio of 12.41. The company offers a forward annual dividend of 3.3% with a quarterly rate of $0.61. The company maintains an above-average payout ratio of 77% and has been raising its dividend since 1963.
- The Coca-Cola Company (KO). The Coca-Cola Company engages in the manufacturing, marketing and selling of nonalcoholic beverages around the world. The company's popular brands include names such as Coca-Cola, Sprite, Fanta, Minute Maid, Powerade and vitaminwater. The company now employs 146,200 employees around the world, offers over 3,500 beverage products, sells its products in over 200 countries, and has been in business for over 126 years. The Coca-Cola Company currently supports a market capitalization of $167 billion and a reasonable forward P/E ratio of 17.11. The company offers a forward annual dividend of 2.7% with a quarterly rate of $0.255. The company maintains a respectable payout ratio of 52% and has been raising its dividend since 1963.
- Procter & Gamble Co. (PG). The company provides consumer packaged goods for domestic markets and around the world. P&G's self-proclaimed five core strengths are Consumer Understanding, Scale, Go-to-Market Capabilities, Brand-Building, and Innovation. Some of the company's largest brands include Crest, Old Spice, Tampax, Charmin, Dawn, Tide and Pepto-Bismol. The company currently supports a market capitalization of $193 billion and a below-average forward price-to-earnings ratio of 16.40. The company offers a forward annual dividend of 3.2% with a quarterly rate of $0.562. The company maintains an average payout ratio of 61% and has been raising its dividend since 1957.
Comparing Against The Market.
Yet no dividend portfolio is complete without the confidence of knowing that the portfolio is beating the market average. As a stock index that follows the common stock prices of 500 publicly traded American companies, the S&P 500 is often referred to as a benchmark measure of the market itself. The current average dividend yield of the S&P 500 now sits at 2.09% as of January 23, as seen here and in the graphic below. For investors capable of obtaining a similar yield or greater, they are able to maintain an income stream that stands a head above the market as a whole.
|Ticker||Beta||Quarterly Dividend Rate||Annual Dividend Yield %|
Overall, while the S&P 500 averages a dividend yield of 2.09% this consumer-based dividend portfolio offers an average 2.78% annual yield. Collectively, the portfolio also maintains an average beta of 0.49. As the average beta of the market is 1, this also indicates that our portfolio continues to trade with less volatility when compared against the market. Above all, each of these companies has exhibited a strong history of dividend growth, which suggest a stable trend of increasing investment income in the years to come.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.