Core Portfolio For The 59 Year Old

 |  Includes: ABT, LMT, PG
by: Norman Tweed

Congratulations! You've made it to the home stretch. Take pride in planning ahead and saving for retirement. Now top off your portfolio as you progress into your Golden 60s!

Back in 2000, at the last company safety meeting I attended, our vice president announced “the Window of Opportunity” - -early retirement package and severance, part of downsizing. I was happy to jump through the window, having watched my children grow up and get married and having saved through investing my entire career. The stock market had just peaked and everything looked rosy. Then the bubble burst!

The next 10 years were known as the “Lost Decade” in the global markets, with range bound trading and poor returns. Having just finished working through the 18 years of bull market now named the “Tech Bubble”, I was forced to change my way of thinking about stocks and bonds. This new market was similar to the markets of the 1970s (The Great Inflation) and active investing was necessary to capture the cyclical returns of stocks and the market as a whole. The only success that I had had in the 1970s was “Dollar Cost Averaging.” My company had a thrift plan, which became the 401k and 401b plans in the 1980s. You were encouraged to invest up to 6% of your salary in this plan and the company would match up to 3%. At first only company stock could be invested in. Later, mutual funds including the S&P500 were options — I always invested the maximum amount during my 33 years of employment.

In today's article, I will look at 3 companies that should be stable for many years in the future. These stocks have a large moat, good dividends, and provide safety of capital. (Data from First Call, Market Edge, Yahoo Finance, Fidelity and David Fish's CCC charts).

  1. Lockheed Martin Corporation (NYSE:LMT) -- Industrial sector. Lockheed Martin Corporation engages in the research, design, development, manufacture, integration, operation, and sustainment of advanced technology systems and products in the areas of defense, space, intelligence, homeland security, and government information technology in the United States and internationally. This Dividend Challenger has 9 years of increasing dividends. The current yield is 5.32%. The 5-year annual average dividend growth rate is 20.2%. The current p/e is 9.4. The projected earnings per share growth rate for next year is 3.83% and 2.7% for the next 5 years.
  2. Abbott Labs (NYSE:ABT) -- Healthcare sector. Abbott Laboratories engages in the discovery, development, manufacture, and sale of health care products worldwide. This Dividend Champion has 39 years of increasing dividends. The current yield is 3.59%*. The 5-year annual average dividend growth rate is 9.7%. The current p/e is 11.9. The projected earnings per share growth rate for next year is 8.17% and 13.5% for the next 5 years.

  3. Procter & Gamble Co. (NYSE:PG) -- Consumer Staples sector. The Procter & Gamble Company provides consumer packaged goods in the United States and internationally. This Dividend Champion has 55 years of increasing dividends. The current yield is 3.34%*. The 5-year annual average dividend growth rate is 11.6%. The current p/e is 15.9. The projected earnings per share growth rate for next year is 6.08% and 4.4% for the next 5 years.

    *Yield on these stocks does not meet my minimum 4% threshold for strategic investment. I would hold out in purchasing these stocks until they have 4% yield due to increased dividend payment.

A chart comparing these three stocks over the last five years shows the cyclical nature of all three stocks, when compared to SPY (S&P500 Index ETF).

Click to enlarge
(Click to enlarge)

We will now look at the dividend income stream for these three stocks. With equal positions of $10k each purchased 1 year ago, these stocks produced a quarterly income stream as shown in the following table:


Quarterly Dividend Rate

Number of Shares

Quarterly Income













Click to enlarge

In order to investigate the growth of the portfolio, due to dividend reinvestment, I will once again create a spreadsheet for only the last year (November 2010-November 2011).

Stock Date of reinvest Div Rate # Shares Dividend Drip price # Shares pur Total Value
Totals 152.68 $446.68 6.06
LMT 08/30/11 $0.75 151.10 $113.32 $71.57 1.58 $10,927.25
05/27/11 $0.75 149.62 $112.22 $76.28 1.47 $11,525.59
02/25/11 $0.75 148.23 $111.17 $79.85 1.39 $11,947.53
11/29/11 $0.75 146.62 $109.97 $68.20 1.61 $10,109.45
Totals 223.75 $411.24 8.10
ABT 10/12/11 $0.48 221.71 $106.42 $52.33 2.03 $11,708.69
07/13/11 $0.48 219.71 $105.46 $52.77 2.00 $11,699.82
04/13/11 $0.48 217.64 $104.47 $50.45 2.07 $11,084.62
01/12/11 $0.44 215.65 $94.89 $47.58 1.99 $10,355.51
Totals 165.67 $334.02 5.23
PG 10/19/11 $0.53 164.34 $86.28 $64.73 1.33 $10,723.74
07/20/11 $0.53 162.94 $85.55 $61.49 1.39 $10,105.02
04/27/11 $0.53 161.64 $84.86 $65.27 1.30 $10,635.40
01/19/11 $0.48 160.44 $77.33 $64.20 1.20 $10,377.58
Click to enlarge

At this point, I will add a table to illustrate the growth of dividends received and the steadily growing income over time.





















Click to enlarge

In addition, I will illustrate the total value of this portfolio by quarter in the following graph:

Click to enlarge
(Click to enlarge)

It can be seen from the table that the income for the year was: $282.19+ $300.50 + $303.23 + $306.02= $1191.94. On the initial investment of $30k, this was 3.973% yield — which does not meet my minimum 4% yield for a core dividend growth stock portfolio. However, LMT raised its dividend by 33% for the November 2011 payment, whereas during the study period, it remained flat. I believe LMT will continue to have significant increases in dividend payment going forward. In addition, it can be seen from the Total Portfolio chart that the ending portfolio value was $33,359.68. This computed out to a capital gain of $3359.68 or 11.19%.

It should be noted that this is the final group of stocks added prior to retirement. The goal was not capital gain, only dividend income stream. The idea is to build up a portfolio that you can passively manage in your golden years. It is important to note that what the market giveth in capital gains it will take away in capital losses as can be seen by the 5-year cyclical chart of SPY underlying these stock prices.

Conclusion: AT age 59, one may already be retired. However, if not they should definitely consider it. This is the 5th and final portfolio in this pre-retirement series, giving 15 stocks total for diversification. Many people would add stocks in other sectors, especially utilities to bring up the yield. Others would shoot for 30 stocks for further diversification. Had I known in 2000 what was coming, I would have been much happier with this portfolio, than mutual funds or high flying stocks of the day. I did have a 30% allocation to cash when I retired and that carried me through the 2 market crashes that we have seen in the Lost Decade. Going forward, my portfolio resembles these 15. My stock selections are what I think is conservative for a retiree with extended family responsibilities. They may not be as good for you and you must do your own due diligence before investing your hard earned money.

Disclosure: I am long ABT, PG. I may start a position in LMT in the next 72 hours.