This is the fourth and final article in a series about my dream retirement portfolio. Throughout the series I have selected the following stocks to represent 10% each of my contributions toward my dream retirement portfolio. If you would like to read all of it from the beginning, please click here.
| Walt Disney Co. (DIS) | 10% |
| Tiffany & Co. (TIF) | 10% |
| Visa, Inc. (V) | 10% |
| 3M Co. (MMM) | 10% |
| Apple Inc. (AAPL) | 10% |
| Google Inc. (GOOG) | 10% |
| Illinois Tool Works Inc. (ITW) | 10% |
| Nike Inc. (NKE) | 10% |
| Tyson Foods Inc. (TSN) | 10% |
The last equity won't be a major telecom like AT&T, Inc. (T) or Verizon Communications (VZ) because I believe their business models are doomed to fail in the long run. A 6% dividend payment today is very tempting, but if I am investing for my future retirement, then I need to steer clear of firms whose monopolistic hold on the countries consumers will fold. Verizon's recent decision to change its current data offering provides an opening for smaller competitors (albeit that use their network) to compete with the company and win. Smaller companies like Leap Wireless International (LEAP) and MetroPCS Communications (PCS) will gain market share with increased phone offerings and an increase in Verizon customers baffled by $200-plus cell phone bills.
The last equity will not be a TBTF bank. I am currently employed as a bank examiner for the State of Rhode Island, so I am going to refrain from any market commentary about the industry overall. However, for the sake of this article I would like to say that our federal government did not allow the big banks to fail and didn't send anyone to prison, and therefore history is doomed (probably in my retirement) to repeat itself. Please keep in mind that this prediction has absolutely nothing to do with my current employment situation; it is a personal belief that I have had before I held this position.
You may also notice that McDonald's (MCD) and Coca-Cola (KO) are missing here. I consider these fantastic equities to have in a current retirement portfolio as they provide a predictable, growing dividend for the foreseeable future. My retirement, about 40 years off, isn't that close and the picture has become much cloudier for these names. NYC Mayor Michael Bloomberg has declared war on sugary drinks, and has already waged war on the oil I love to have my French fries cooked in. If the current healthcare law is upheld by the Supreme Court, I am worried about the eventual backlash these companies could face as they may become the whipping boys for the reasons our country spends so much on healthcare. (I don't think they are the reason -- I'm just predicting here.)
For the last section of my dream retirement portfolio, I want to make sure I have exposure to all of the major drug manufacturers. I am excited about this sector given that the ban on stem cell research has been lifted under President Obama. So, with the final 10% of my contributions I would like to split them evenly between the following companies:
| Eli Lilly & Co. (LLY) | 2% |
| Bristol-Myers Squibb Company (BMY) | 2% |
| Johnson & Johnson (JNJ) | 2% |
| Merck & Co. Inc. (MRK) | 2% |
| Pfizer Inc. (PFE) | 2% |
Eli Lilly has a healthy balance sheet with an enormous dividend yield of 4.7%. Reinvesting my dividends in more shares will provide an opportunity to really grow capital, as I believe there is value in the shares -- they trade at less than 12 times forward earnings. Eli Lilly is a leader among the larger drug manufacturers in Price/Sales (2.03) and Price/Free Cash Flow (16 times).
Bristol-Myers is the priciest among the group with a forward earnings multiple of 18 times and Price/Free Cash Flow of 28.5 times. The almost 4% dividend is healthy, safe, and wonderful to have. I would consider not reinvesting dividends in Bristol-Meyers at the current earnings multiples and would wait for them to be in line with the rest of the major drug manufacturers (12 times) or lower.
Johnson & Johnson is the behemoth among the group with over $33 billion to support its 3.7% dividend. The payout ratio of 62% is not currently a concern to me, but is something I would monitor over time. Trading at 12 times forward earnings, I would have no problem reinvesting dividends at current levels.
Merck has an attractive 10.5 times forward earnings multiple, which means I would love to reinvest my shares with a hefty 4.3% dividend yield. A payout ratio of 71% means that the payments can't continue into my retirement without the company growing revenues considerably in the medium term.
Finally, Pfizer would round out my stable of drug manufacturers with a forward earnings multiple of 9.6 times, the lowest in the group. Its Price/Free Cash flow is among the leaders as well (16.3 times), which means my 3.9% dividend yield is safe for some time to come.
I believe choosing just one major drug manufacturer would be a major risk for my dream retirement portfolio that I do not want to take. By allocating a small portion of my portfolio to each stock, I am sure to participate in the cures of today's modern diseases without being concerned about missing out.
I hope you enjoyed my dream retirement portfolio series. Thank you for reading.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
