Seeking Alpha
Dividend investing, portfolio strategy, CFA, research analyst
Profile| Send Message|
( followers)  

We launched a new series of articles this week with the premise of building a dividend portfolio from scratch by leveraging the collective knowledge and opinions of the Seeking Alpha community. In parts 1 and 2, we highlighted the investment plan and strategy for the portfolio and parts 3-11 will highlight each sector in the S&P 500, including high-rated stocks within each sector to consider for the portfolio. Readers can either vote on the stocks we suggested for the portfolio or "write in" their own stocks to vote on. Majority will rule.

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.

Picking Consumer Staple Stocks For The Portfolio

As you know, we picked a Consumer Staple stock, Coca-Cola (NYSE:KO), as our Portfolio Captain to get the ball rolling. KO dropped into our "Buy Zone" this morning and we started a small position in the stock (100 shares at $38.70), which represented about 1.5% of the total $250,000 portfolio.

The goal now is to build a watch list of great stocks by sector that we can use to build the portfolio over time (purchasing shares when the prices are right).

We suggested five great Consumer Staple stocks for folks to vote on in Part 3: General Mills (NYSE:GIS), Kimberly Clark (NYSE:KMB), Altria (NYSE:MO), Wal-Mart (WMT) and Clorox (NYSE:CLX). Readers also suggested some great "write-in" votes like Procter & Gamble (NYSE:PG), Target (TGT) and Philip Morris (NYSE:PM).

Well, we tallied up the votes and the most popular stocks among the group were General Mills, Clorox and Procter & Gamble. The Honorable Mention awards go to Kimberly-Clark, Wal-Mart and Altria.

Let's put all 6 of these stocks on our watch list and patiently wait for their respective Buy Zones.

Which Consumer Staple Stocks Are In The "Buy Zone?"

The current Fed-induced rally has expanded P/E multiples across the board and most high-quality stocks are priced for perfection. That said, let's take a look at the current charts for GIS, CLX, PG, KMB, WMT and MO. and compare where they trade in relation to their respective Buy Zones.

General Mills currently trades 3.5% above its Buy Zone. Ideally, we would like to purchase the stock under $47.00 (which would equate to a forward P/E ratio around 16.0x and a forward yield around 3.25%).

Clorox currently trades only 1.0% above its Buy Zone. Ideally, we would like to purchase the stock under $82.00 (which would equate to a forward P/E ratio under 18.0x and a forward yield around 3.5%).

Procter & Gamble currently trades 5.7% above its Buy Zone. Ideally, we would like to purchase the stock under $75.00 (which would equate to a forward P/E ratio around 17.0x and a forward yield around 3.25%).

Kimberly Clark currently trades only 0.8% above its Buy Zone. Ideally, we would like to purchase the stock under $95.00 (which would equate to a forward P/E ratio under 17.0x and a forward yield around 3.5%).

Wal-Mart currently trades 3.3% above its Buy Zone. Ideally, we would like to purchase the stock under $74.00 (which would equate to a forward P/E ratio under 14.0x and a forward yield above 2.5%).

Altria currently trades 3.7% above its Buy Zone. Ideally, we would like to purchase the stock under $34.00 (which would equate to a forward P/E ratio under 14.0x and a forward yield above 5.5%).

Summary

Of the watch list stocks highlighted above, CLX and KMB currently trade the closest their respective Buy Zones. As such, we will likely start positions in these stocks in the coming days.

Dividend investing is a marathon, not a sprint. Identifying good stocks is easy ... patiently waiting for the right price is the hard part.

We'll send around updates throughout the entire process so please follow along and participate as much as you can. The next sector on the agenda will be utilities. Please make sure to "follow" us so that you will be notified when each new article is published.

Source: DIY Dividend Investors Club (Part 3b): Which Consumer Staple Stocks Are In The Buy Zone?