The start of a new year is a good time to tinker with your portfolio by purchasing new positions, adding to current positions, and selling under-performing positions (though it would have been better to capture any losses before January from a tax-perspective). It also means that you can start depositing into your IRAs again, which would be prudent to do as soon as possible so the cash is ready to invest when an opportunity presents itself. Of course this is limited to $5,000 and that’s why many invest in ‘retirement’ stocks in their general brokerages accounts as well. These are picks that can be made, and hopefully, you will not have to look over them, as opposed to short-term trading which requires constant vigilance. That is why I personally prefer the former over the latter.
When I look to invest in a long-term dividend stock there are several attributes that I am looking for. The first is that it is a large established company with a big name. This makes the stock easier to understand and follow because of the amount of news available. Size also allows for acquisitions which are generally profitable in the long-run, assuming the company knows what they are doing and can cut costs in the process. Size can also be boring, but what is lost to boring is made up in reliability and risk aversion.
The next is obviously their dividend and its history of being paid, being raised, and being raised by substantial amounts. If a given company has a long standing history of paying a decent dividend there is a presumption that they will continue to do so. This of course can be misleading and prove to be dreadful, see: GE and Pfizer, but for the most part these companies will want to protect their image by paying out. Even companies that have not been paying for that long can show signs that they are committed to doing so, so there is no magic threshold to look for. Nike (NKE) is discussed below and they have only been increasing their dividend since 2002. However, because they are such a large and dominant name in their sector, their dividend payouts are more of a factor and are not make-or-break in deciding to invest.
Fundamentals should be used in gauging the strength of a stock and whether or not you would be paying too much for it. The most common you will see is the price-to-earnings ratio (P/E) which makes it easier to compare one business to another. Many will say that this needs to be under a given figure, but it is truly sector specific. Saying that PepsiCo (PEP) is more expensive than Exxon (XOM) is odd and the two are not really comparable, but saying they are more expensive than Coca-Cola (KO) makes much more sense. So again, there is no particular number to look for here, just look at their competitors and a graph of their P/E in the past (the graphs on E-trade do this in a fairly simple fashion). This will help you determine if the stock is ‘expensive’ or not, and keep in mind that there may be news that has come out that drives up the expectation on their next earnings report which would artificially raise the P/E until the report becomes official.
Technicals should be used to determine when to buy a stock and they are actually much simpler than many pundits proclaim. (A really quick and informative book on this can be found here.) The most basic methods are the best to use in this context and the picture below helps to emphasize these points. I normally used OHLC’s (open-high-low-close), but candlesticks can be used as well. Trend lines should hit at least 3 ticks and cover at least 3 months, but the more the stronger the analysis.
In the graph of McDonald’s (MCD) above, I have drawn upper and lower trend lines. As you can see, its moving upwards and in the green circle, the price broke the upper trend/resistance line, which with any luck will establish a new channel, where the upper trend line becomes the lower trend line. But had they not broke this line and you wanted to invest in McDonald’s, you would want to do so when they are near the lower trend/support line. The other frequently used technicals are “head and shoulders” and flags. These are more short term gauges and can be very helpful if you believe in the fundamentals of the company.
Lastly, be sure to diversify. Remember this is a long-term portfolio so capitalizing on short-swings within particular sectors is not important. Diversifying spreads your risk and there’s not much more that really needs to be said on that. With that in mind, here are 16 stocks that should be on your radar as a long-term dividend play with little maintenance required.
Exxon Mobile (XOM) – The largest company in the world and has been increasing their dividend since 1970. They are the most dominant name in energy and oil and will be for years to come.
Div Yield: 2.2%
Mar Cap: $412.22 billion
Proctor & Gamble (PG) – Proctor offers consumer goods that people cannot really live without. They have small prices and good margins which is going to become a trend with the stocks below.
Div Yield: 3.1%
Mar Cap: $183.87 billion
Colgate (CL) – Colgate is similar to Proctor & Gamble, but with its own line of consumer necessities. They have been increasing their dividend for 48 years.
Div Yield: 2.5%
Mar Cap: $44.33 billion
Kimberly-Clark (KMB) – This is an excellent yield for a company that has grown 12% in price in the last year. They make tissues, paper towels, diapers, and other consumer necessities.
Div Yield: 3.8%
Mar Cap: $28.86 billion
Johnson & Johnson (JNJ) – I tend to think that Johnson & Johnson is the best name in pharmaceuticals because of their yield and the fact that they are diversified within themselves. Aside from prescription pills they also do medical devices and basic consumer goods.
Div Yield: 3.5%
Mar Cap: $180.00 billion
Dover (DOV) – Dover has the third-longest history of increasing their dividend and offers some short term opportunity at this price. They are large industrial conglomerate that loves to make acquisitions.
Div Yield: 2.20%
Mar Cap: $10.95 billion
PPG Industries (PPG) – PPG is sort of tied to the manufacturing/home building sectors because they are a leading name in industrial paints, but unlike those sectors they have doubled in price in the last 3 years.
Div Yield: 2.7%
Mar Cap: $13.14 billion
Genuine Parts (GPC) – Genuine Parts makes automotive components, so even if people are not buying new cars, their old cars will need parts at some point. Their dividend has been increasing for 55 years.
Div Yield: 2.9%
Mar Cap: $9.61 billion
Coca-Cola (KO) – The largest beverage distributor in the world boasting a whole line-up of superior products and one of the most recognizable brands in the world. Tack on 49 years of dividend increases to boot.
Div Yield: 2.7%
Mar Cap: $159.30 billion
PepsiCo (PEP) – It was bad news when Pepsi fell to third behind Diet-Coke in most consumed sodas, but only half of PepsiCo’s revenue comes from beverages, with the rest coming from snacks and food.
Div Yield: 3.1%
Mar Cap: $103.81 billion
Altria (MO) – aka Marlboro. Having a line of products that are legally addictive has proven to be very profitable for investors, the government, and healthcare practitioners.
Div Yield: 5.5%
Mar Cap: $58.66 billion
Consolidated Edison (ED) – This is the only utility on this list, but it is one of biggest and reliable. The higher yield is nice but does not grow as substantially as others on the list. It’s a better play for older investors that would prefer the income sooner rather than later.
Div Yield: 3.9%
Mar Cap: $17.76 billion
Wal-Mart (WMT) – Biggest retailer in the world and 36 years of increasing dividends. Wal-Mart is slowing taking over the world and the government does not seem to mind. Their yield is also slightly higher than Target (TGT), Wal-Mart’s key competitor.
Div Yield: 2.4%
Mar Cap: $206.61 billion
McDonald’s (MCD) – Their price run up was featured above, which lead all Dow components in 2011. But there is still room to run and an excellent yield as well. The McCafe menu has taken off and McDonald’s has a new line of commercials on the integrity of their ingredients.
Div Yield: 2.8%
Mar Cap: $101.13 billion
Nike (NKE) – As stated above, Nike has been increasing their dividend since 2002. The yield is not great, but remember this is a long term portfolio and Nike has been dominating their sector for decades. As a case study, here is a news report from just before Christmas on the sale of the new Jordan’s.
Div Yield: 1.5%
Mar Cap: $44.46 billion
Disney (DIS) – Like Nike, this is sort of a wild card because Disney’s yield is not great and pays only once a year. However they have a strong footing in their sector and revenue growth is picking up in one of their biggest earners, ESPN.
Div Yield: 1.6%
Mar Cap: $68.82 billion
These 16 stocks represent some of the largest, strongest companies in the world who reward their investors year after year. This list is not meant to be all-inclusive as there are a number of other stocks available that may be a better fit for your particular investment philosophy.