Watch List Summary
This week's watch list shrank drastically after an amazing run in the market. According to Dow Theory, this bull market still has legs after the Dow Jones Industrial Average confirmed the move of the Dow Jones Transportation Average at the closing on Wednesday, November 3, 2010. We elaborate further in the article, Dow Theory: Continuation of Bull Market Confirmed. We suggest anyone who missed that article to revisit it.
Although companies on our watch list may not appear to be "exciting", they contain some of the best run companies in the world. For example, we all know Colgate-Palmolive (CL), Clorox (CLX), Kimberly-Clark (KMB) (maker of Kleenex) and Pepsi (PEP). This may be a good time to start your research on these companies. Once you have determined the potential stock(s), you may want to refer to our post on the November ex-dividend dates which may help boost the gain or offset the costs.
November 5, 2010 Watch List
| Symbol | Name | Price | % Yr Low | P/E | EPS (ttm) | Div/Shr | Yield | Payout Ratio |
| CAG | ConAgra Foods, Inc. | 22.15 | 4.14% | 14.11 | 1.57 | 0.92 | 4.15% | 59% |
| CL | Colgate-Palmolive Co. | 77.45 | 4.84% | 18.48 | 4.19 | 2.12 | 2.74% | 51% |
| CLX | Clorox Co. | 62.61 | 5.09% | 14.77 | 4.24 | 2.20 | 3.51% | 52% |
| WABC | Westamerica BanCorp. | 51.50 | 5.54% | 16.14 | 3.19 | 1.44 | 2.80% | 45% |
| KMB | Kimberly-Clark Corp. | 63.01 | 5.80% | 14.26 | 4.42 | 2.64 | 4.19% | 60% |
| BOH | Bank of Hawaii Corp. | 45.37 | 6.42% | 11.94 | 3.80 | 1.80 | 3.97% | 47% |
| CBSH | Commerce Bancshares, Inc. | 38.75 | 8.04% | 15.44 | 2.51 | 0.94 | 2.43% | 37% |
| PEP | PepsiCo Inc. | 65.08 | 9.85% | 16.39 | 3.97 | 1.92 | 2.95% | 48% |
Top Five Performance Review
| Name | Symbol | 2009 Price | 2010 Price | % change |
| Aqua America | WTR | 15.63 | 21.93 | 40.31% |
| California Water | CWT | 35.16 | 37.72 | 7.28% |
| Monsanto | MON | 67.87 | 62.27 | -8.25% |
| Wal-Mart | WMT | 50.12 | 55.2 | 10.14% |
| Piedmont Nat Gas | PNY | 22.02 | 29.59 | 34.38% |
| Average | 16.77% | |||
| Dow Jones Industrial | DJI | 10,023.42 | 11,444.08 | 14.17% |
| S&P 500 | SPX | 1,069.30 | 1,225.85 | 14.64% |
As a group, the top five companies on our Dividend List averaged a gain of 16.77% in the last year. This compares with the Dow Jones Industrial Average gain of 14.17% and the S&P500 gain of 14.64% in the same one year time frame. The top performing stock of the group was Aqua America which closes out the year with a gain of 40.31%. The worst performing stock was Monsanto with a loss of 8.25% in the one year time period. The graph below demonstrates that all stocks, except Wal-Mart, achieved 10% gains within six months of being on the watch list from November of last year.
Click to enlarge:
Disclaimer: On our current list, we excluded companies that have no earnings and payout ratios in excess of 100%. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence.
Because our list has many great companies, we urged investors to filter for companies with less than a 50% payout ratio. This should minimize the risk of dividend reductions if earnings are to fall by half. If you understand the companies' history and their ability to pay the dividend, then payout ratios in excess of 50% may be considered. We suggest readers use the March 2009 low (or companies' most distressed level in the last 2 years) as the downside projection for investing. Our view is to embrace the worse case scenario prior to investing. The November 2008 to March 2009 time frame fits that description. It is important to place these companies on your own watch list so that when the opportunity arises, you can purchase them with a greater margin of safety.
Disclosure: No positions
