If your parents retired tomorrow with a million dollars sitting in the bank and asked you to invest their life savings in ten stocks to carry them through their retirement, how would you choose to invest the money?
If my parents trusted me with this responsibility, I’d be looking for the bluest of the blue chip stocks—the type of companies with Fort Knox-like balance sheets that won’t be going away anytime soon. I would only consider industry-leading companies with a very long history of rising dividends (and an equally long history of generally rising profits) that have high barriers to entry in their field, a strong competitive advantage, and little risk of technological obsolescence.
Although ‘in real life’ I would invest the money gradually, waiting for 5-10% dips before making the purchases, these are the companies that I would assemble together for my parents’ portfolio:
- Coca-Cola (KO). Generally regarded as the ultimate Buffett stock, Coca-Cola is the largest beverage company in the entire world. And its product line includes much more than its flagship Coke drink—its arsenal also includes: Diet Coke, Sprite, Dasani water, Fresca, Minute Maid orange juice, Fanta, Powerade, and the Vitamin Water brands. KO’s quarterly dividend has increased from 17 cents per share at the start of 2000 to 44 cents per share at the end of 2010. Meanwhile, KO’s earnings per share has increased from $1.48 in 2000 to $3.49 in 2010. At its current price of around $67.75 per share, $100,000 worth of KO stock would give you around 1,476 shares of KO stock.
- Clorox (CLX). Predictable businesses that consistently drown you in cash are great. Like Coke, Clorox boasts a formidable line-up of products in addition to its eponymous Clorox cleaner such as Glad trash bags, Pine-Sol, Formula 409, Tilex, Fresh Step & Scoop Away kitty litter, Kingsford charcoal, and even KC Masterpiece sauces. Clorox has increased its dividend from 20 cents per share at the start of 2000 to 55 cents per share at the end of 2010. And Clorox has seen its earnings per share grow from $1.75 per share at the start of the decade to $4.24 at the end of 2010. Based on CLX’s current price of around $64.10 per share, $100,000 worth of CLX would give you ownership of roughly 1,560 shares.
- Johnson & Johnson (JNJ). The diversified health-care giant has taken its fair share of lumps recently, but even adjusting for the amount of recalls, JNJ is still a cash-producing behemoth. The amount of products under the Johnson & Johnson name is almost too numerous to name, but some of its top-line consumer products include: Neutrogena, Lubriderm, Rogaine, Aveeno, Bengay, Band-Aid,Listerine, Rembrandt, Tylenol, Sudafed, Nicorette, and plenty of others that form an impressive arsenal. JNJ’s earnings have increased from $1.70 to $4.76 from 2000-2010, and its quarterly dividend has increased from $.16 to $.54 over the same time frame. Based on JNJ’s current price of around $63.15 per share, $100,000 worth of JNJ stock would give you roughly 1,583 shares.
- Kraft Foods (KFT). Although it looks like Kraft will be split up into two separate companies within the coming year, buying Kraft shares now enables you to snap up a formidable line-up of cash cows, including: A1 steak sauce, Chips Ahoy, Cool Whip, Gevalia, Jell-O, Kool-Aid, Nabisco, Nutter Butter, Oreo, Oscar Meyer, Planters, Ritz Crackers, Trident Gum, Velveeta, Wheat Thins, and a whole host of other products under the Kraft umbrella, such as Cadbury Chocolate and Maxwell House Coffee. Since 2001, Kraft has increased earnings per share from $1.17 to $2.02 at the end of 2010. Likewise, they have increased its quarterly dividend from $0.06 per share to $.29 per share from 2001 to 2010. Based on Kraft’s current price of around $33.80 per share, $100,000 worth of Kraft stock would give you about 2,958 shares of Kraft stock.
- Procter & Gamble (PG). Like the other companies on this list, P&G has a long and storied list of brands, such as: Duracell, Febreze, Pringles, Pampers, Tide, Puffs, Bounce, Braun, Pantene, Old Spice, Head and Shoulders, Olay, Oral-B, and Swiffer. This diversified giant has increased earnings from $1.58 to $3.53 from 2000 to 2010, and they have increased its quarterly dividend from $.18 to $.4818 over the course of the decade. Based on its current price of around $60.85 per share, a $100,000 investment would give you about 1,643 shares of P&G.
- Exxon Mobil (XOM). I have no idea what the super long-term future for energy may be, but I’m pretty sure we won’t achieve alternate energy independence in the next decade or two. And Exxon Mobil is a profit-producing beast. XOM is damn-near minting money, generating billions upon billions of dollars each quarter. With the help of extremely rising gas prices over the past decade, Exxon saw its earnings per share grow from $2.41 in 2000 to $6.22 per share in 2010, with quarterly dividend growth from $.22 per share to $.44 per share along the way. At current prices of $70.95 per share, sinking $100,000 into Exxon Mobil would give you roughly 1,409 shares of XOM.
- Wal-Mart (WMT). It took Wal-Mart a couple decades to displace Sears-Roebuck and Woolworth stores as the pre-eminent American retailer, and I don’t think it would be a smart bet to wager against Wal-Mart being displaced as the world’s leading retail giant within the next decade or two. The King of Retail has seen its earnings per share grow from $1.40 to $4.05 during the 2000-2010 stretch, and quarterly dividends have risen from $0.06 per share to $.3025 per share during that time frame. At its current price of around $51.80 per share, you could buy about 1,930 shares of Wal-Mart with a $100,000 purchase.
- Kimberly-Clark (KMB). Like JNJ, PG, and CLX, Kimberly Clark boasts a strong stable of top-line products, such as: Huggies, Pull-Ups, Kleenex, Kotex, Snugglers, and Green Finger. The consumer products giant increased earnings per share from $3.31 to $4.45 over the 2000-2010 decade, raising its quarterly dividend from $.27 per share to $.66 along the way. At its current price of around $65.60 per share, a $100,000 of KMB stock would give you about 1,524 shares.
- Colgate-Palmolive (CL). Like Clorox, Colgate-Palmolive is truly a global giant in the household products industry. Colgate-Palmolive boasts products such as: Ajax, Fab, Murphy, Javex, Colgate, Irish Spring, Mennen, Hill’s, Softsoap, and the Palmolive house cleaning-sprays. Colgate Palmolive saw earnings per share grow from $1.70 in 2000 to $4.31 per share in 2010, with a dividend increase from $.1575 to $.53 per share. At a current price of about $85.00 per share, you could buy 1,176 shares of Colgate-Palmolive with a $100,000 purchase.
- Pepsi Co. (PEP). Pepsi, like Coca-Cola, has an incredibly strong line-up of soft drinks, and a snack division to boot. Pepsi’s top soft drink products include: Pepsi, Diet Pepsi, Tropicana Orange Juice, Mountain Dew, and Gatorade. And the Frito-Lay division includes: Doritos, Lay’s, and Ruffles. And Quaker Oats is an additional cash-generating subsidiary of the parent Pepsi Company. This diverse collection of snack and beverage products led Pepsi to increase its earnings per share from $1.48 to $3.91 during the 2000-2010 stretch, with dividend growth from $.14 per quarterly share to $.48. A $100,000 investment at about $63.10 would give you 1,584 shares of Pepsi.
The general purpose of this article was to draw your attention to the types of companies that seemingly make money no matter what’s going on. The 20th century saw a lot of crapola: WWI, WWII, Vietnam, The Cold War, Persian Gulf, 9/11, Afghanistan, Iraq—you get the picture. The United States has seen the Great Depression, sky-high unemployment, sky-high inflation, dot-com busts, housing busts, and problems throughout the world that were supposed to spell the end of global growth.
But guess what—these large multinational companies with strong brand names and economies of scale have been able to navigate these currents and richly reward shareholders. We often wish our parents, grandparents, and great-grandparents would have hunkered down and bought a lot of stock during the Great Depression or stock market crash of 1987, but yet, when faced with the opportunities in our own life, we sometimes let fear overtake us. If someone could hold Coke stock when the stock market crashed in 1929, or hold Pepsi stock during World War II, don’t you think that you can at least find the gumption to hold Johnson & Johnson stock through the current economic turmoil?