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Value, long-term horizon, dividend investing, portfolio strategy
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Stocks have done fantastic this year with the major indexes hitting records it seems every week. If you have been invested all this year and for the last four or five years nonetheless your portfolio should have done great with the stock market making huge strides. As with all bull markets some sectors do worse than others and some do far better.

Dividend Growth Investing has long been a technique that many use to provide income and good long term growth in their portfolios. I too use Dividend Growth investing and like everyone have some favorite stocks. With interest rates at historic lows there have been a lot of people jumping into the dividend growth stocks to get 3% or so income from dividends since it is hard to find that income anywhere else. Some of dividend stalwarts are approaching bubble territory in my opinion with their prices sky rocketing and their earnings per share and their dividends not increasing at the same pace.

I will go over a few stocks that are approaching or are in bubble territory and also look at a few that are fairly priced. Lastly, I'll briefly talk about mREITs as a possible alternative to park some of your portfolio since they have been hammered this year and are near historic lows and thus a good long term value.

Let me say outright that I love these stocks and by no means am I talking the companies or their management down. I own most of these stocks and plan on holding for the long term. I do believe that at today's prices though it is not the right time to add or initiate a new position.

Johnson & Johnson (NYSE:JNJ), American State Water Co. (NYSE:AWR), The Walt Disney Co. (NYSE:DIS), Emerson Electric Co. (NYSE:EMR), General Electric Co. (NYSE:GE), 3M (NYSE:MMM), and Waste Management, Inc. (NYSE:WM) are among the companies that I believe are in a bubble and should be avoided until the prices come down.

NTT DoCoMo, Inc. (NYSE:DCM), Philip Morris International, Inc. (NYSE:PM), AT&T Inc (NYSE:T), and ConocoPhillips (NYSE:COP) are just a few examples of dividend aristocrats that are fairly valued and may represent a good opportunity to add or initiate a position in them.

Bubble Stocks

JNJ

AWR

DIS

EMR

GE

MMM

WM

Last Yr EPS

$5.10

$1.41

$3.39

$3.54

$1.52

$6.32

$2.08

Current Yr EPS (Est)

$5.49

$1.47

$3.92

$3.78

$1.63

$6.70

$2.19

Next Yr EPS (Est)

$5.85

$1.43

$4.49

$4.23

$1.75

$7.41

$2.37

Ann Earnings inc

7.05%

0.71%

15.1%

9.35%

7.35%

8.20%

6.81%

1 Yr Price inc

36.2%

27.4%

42.5%

34.4%

27.0%

46.8%

40.1%

1 Yr Dividend inc

7.92%

19.7%

25%

3.11%

11.8%

7.62%

2.82%

1 Dec 12 P/E

13.67

15.71

14.65

14.19

13.90

14.39

15.66

1 Dec 13 P/E

17.24

19.85

17.99

17.72

16.36

19.93

20.86

Fairly Priced Stocks

DCM

PM

T

COP

Last Yr EPS

$1.14

$5.22

$2.31

$5.37

Current Yr EPS (Est)

$1.27

$5.41

$2.47

$5.86

Next Yr EPS (Est)

$1.32

$5.63

$2.65

$6.23

1 Yr Earnings inc

7.65%

3.84%

7.02%

7.60%

1 Yr Price inc

10.4%

-4.9%

3.8%

27.5%

1 Yr Dividend inc

0%

10.4%

2.27%

2.27%

1 Dec 12 P/E

12.68

17.21

14.77

10.60

1 Dec 13 P/E

12.65

15.81

14.26

12.42

These are all good stocks and I would recommend getting into them for the long term. However as you can see, many of the dividend stalwarts are overpriced right now based on the recent market run up. There are a few dividend stalwarts that are fairly priced such as DCM, PM, T, and COP. The rest have seen huge price gains and their earnings have not kept pace. Until we see some pullback among those I would advise against getting into them.

Most of the "bubble" stocks have risen from reasonable P/E ratios in the low to mid teens to the high teens in the last few months. I believe in general any company whose P/E is between 12 and 15 is reasonably valued. Below 12 and I consider it undervalued and above 15 I consider it overvalued and caution should be used before purchasing. Some industries are different and don't follow these rules of course but in general that is how I view value.

I also generally use the 12 month forward projected P/E which I didn't use here. I used current year estimated P/E. I believe we are approaching AT LEAST a short term top in the market, if not a longer term top and therefore do not fully trust analyst estimates going 12 months out. My past experience has shown that as a population; analysts seem to overshoot the top and undershoot the bottom so the projections at each of these points are overly optimistic and overly pessimistic, respectively.

Another option I believe all income investors should consider are REITs, BDCs, and MLPs. REITs, especially mREITs have been hit hard lately due to all the taper talk. Some of these rightfully have been dropping and some have dropped simply with the rest of the sector. These all generally yield high single digit to low double digit dividends.

You can view my previous article written a few weeks ago with what I think are a few good picks in the mREIT sector. You can also view my portfolio to see some other good ideas in the BDC, MLP, and REIT sector.

As always due diligence should be used before investing in any equity and this article represents my opinion only. I will continue to watch all stocks mentioned and will likely be adding to my mREITs positions. I will also take any dips in the above mentioned stocks as possible opportunities to accumulate more.

Source: Are We Approaching A Market Top? Where You Can Still Find Value!