When it comes to seeking replacement income, it is always important to concentrate on stability without sacrificing yield. In order to develop such a stable dividend portfolio, one should take into consideration the growth of the dividends within. In light of the Great Recession, many income investors refocused their attention onto seeking sustainable yields even in the midst of global crisis. As such, the following attempts to formulate a safe dividend portfolio capable of weathering another recession. As it stands, established companies that are able to continuously improve their yields are often the enterprises that stand as the most attractive investments to institutional investors. In turn, the stability of the largest investors often reflects the very stability of the stock price itself. Such predictability found in increased dividend yields often result with decreased volatility found in steady share prices.
It is also important to remember that the strength of a dividend is often measured by its historical endurance over the course of the company's lifetime. In the same sense, the strength of a company is often measured by its ability to consistently return value to its shareholders through distributions. It remains a progressive indication when companies annually raise their dividend rates as an expression of their financial well being. Such companies reflect their commitment to their shareholders and often reflect a rare form of consistency so often lacking on the stock market.
The following companies were chosen for several reasons. First, each company has a market capitalization in excess of $30 billion. This decision was made in order to ensure market leadership. Second, each company has a focus on addressing the needs of everyday individuals. This measure takes a conservative approach to the market by concentrating on the products and services that people tend to rely on regardless of economic condition. 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.
When we take a look at the following graphic, we see the dividend history illustrate 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 March 15, 2013.
WAG data by YCharts
Walgreen Co. (WAG)
As the operator of nearly 8,000 drugstores in the United States, Walgreen operates as a local provider of prescription and non-prescription drugs. The company was founded in 1901, and now maintains a presence throughout all 50 states as well as Puerto Rico. Walgreen currently supports a market capitalization of $40.21 billion and a below-average forward price-to-earnings ratio of 11.56. Trading with a slight above-average volatility vs. the market, it currently maintains a beta of 1.28. The company offers a forward annual dividend of 2.6% with a quarterly rate of $0.275. Walgreen maintains a comfortable payout ratio of 45% and has been raising its dividend since 1976.
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 $210.17 billion and an average forward price-to-earnings ratio of 17.65. Trading with significantly less volatility than the market, it currently maintains a beta of 0.30. The company offers a forward annual dividend of 2.9% with a quarterly rate of $0.5625. The company maintains an average payout ratio of 50% and has been raising its dividend since 1957.
Pepsico, Inc. (PEP). Pepsico was founded in 1898 and has since grown to be one of the largest providers of beverages and snack foods. The company has operations around the world and supports some of the more recognizable brands under its wings. Some of these names include Lays, Ruffles, Doritos, Cheetos, Fritos, Quaker, Rice-A-Roni, Pepsi, Gatorade, Mountain Dew, 7Up and Tropicana. PepsiCo currently supports a market capitalization of $118.80 billion and an average forward price-to-earnings ratio of 16.14. Trading with significantly less volatility than the market, it currently maintains a beta of 0.36. The company offers a forward annual dividend of 2.8% with a quarterly rate of $0.538. The company maintains a feasible payout ratio of 56% and has been raising its dividend since 1973.
Colgate-Palmolive Company (CL)
Colgate-Palmolive Company was founded in 1806 and its headquarters is in New York City. The company is a global consumer products leader with a focus on its core business segments of Oral Care, Personal Care, Home Care and Pet Nutrition. Overall, it specializes in the production and distribution of soaps, detergents, toothpastes, veterinary products, and more. Several of the company's numerous brands include Colgate Total, Irish Spring, Speed Stick, Ajax and Palmolive. Colgate-Palmolive currently supports a market capitalization of $52.59 billion and an above-average forward P/E ratio of 18.14. Trading with significantly less volatility than the market, it currently maintains a beta of 0.32. The company offers a forward annual dividend of 2.2% with a quarterly rate of $0.62. The company maintains a respectable payout ratio of 47% and has been raising its dividend since 1964.
Kimberly-Clark Corporation (KMB). As a manufacturer and marketer of healthcare products, Kimberly-Clark operates through its four business segments of Personal Care, Consumer Tissue, K-C Professional & Other and Healthcare. The company primarily produces paper-based consumer products and sells its wares directly to supermarkets, retail outlets, drugstores, and other distributors. Kimberly-Clark currently supports a market capitalization of $36.06 billion and an average forward price-to-earnings ratio of 15.53. Trading with volatility below the market, it currently maintains a beta of 0.05. The company offers a forward annual dividend yield of 3.5% with a quarterly rate of $0.81. The company maintains an above-average payout ratio of 63% and has been raising its dividend since 1973.
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 2.00% as of March 15, 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 2.00% this consumer-based dividend portfolio offers an average 2.80% annual yield. Collectively, the portfolio also maintains an average beta of 0.46. 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.