Back at the end of 2011, I selected four dividend stocks for 2012 and beyond as part of a stock picking competition. The reasons behind the selections were listed in the original article. The companies included are characteristic of the many stocks in own in my income portfolio. They represent companies with diverse products, that have strong brand names for which consumers are willing to pay a premium. These strong brand names make it easier to pass on cost increases to customers. Future growth in these four companies will be driven by several factors. These companies sell everyday products which customers purchase repeatedly on a regular basis, thus creating sustainable diversified income streams for the companies that sell these products. In addition to that, these consumer giants tend to sell the number one or two brand in the specific market niches they are serving.
The first factor includes population growth worldwide and the growth in the number of people joining the middle class in emerging markets such as China, India, Russia and Brazil. Another factor includes continued product innovation, which leads to new products to address different needs in specific market segments. Further growth could be generated not only organically, but also through acquisitions and by squeezing money out of the value chains by streamlining operations and making them more efficient.
The companies selected included the following:
The Procter & Gamble Company (PG), together with its subsidiaries, provides consumer packaged goods and improves the lives of consumers worldwide. The company operates through six segments: Beauty, Grooming, Health Care, Pet Care, Fabric Care and Home Care, and Baby Care and Family Care. Procter & Gamble is a dividend king, which has managed to boost dividends for 56 years in a row. Despite short - term weakness over the past few quarters, the current price presents an attractive entry opportunity for long-term dividend investors. The company boosted distributions by 7% to 56.20 cents/share in 2012. Yield: 3.70%
Johnson & Johnson (JNJ) engages in the research, development, manufacture, and sale of various products in the health care field worldwide. Johnson & Johnson is a dividend king which has raised distributions for 50 years in a row. The company boosted distributions by 7% to 61cents/share in 2012. Yield: 3.60%
Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has consistently boosted distributions since it was spin off from Altria Group in 2008. The company last boosted distributions by 20% to 77 cents/share. Yield: 3.50%
PepsiCo, Inc. (PEP) engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products, and other foods worldwide. It operates in four divisions: PepsiCo Americas Foods, PepsiCo Americas Beverages, PepsiCo Europe, PepsiCo Asia, Middle East, and Africa. PepsiCo is a dividend aristocrat which has raised distributions for 40 years in a row. The company boosted distributions by 4.40% to 53.75 cents/share in 2012. This has been one of the lowest rates of dividend increase for several years. However, dividend growth rates do fluctuate over time, so this is something to be expected. I still find PepsiCo to be a better value than Coca - Cola (KO) at current prices. Yield: 3%
So far this year, this selection of four stocks delivered 4.91% versus 9.48% for S&P 500. In general, in order to ensure long-term success in dividend investing, investors need to hold a diversified list of at least 30 individual income stocks representative of as many industries that make sense. Furthermore, a portfolio of attractively valued income stocks would take a period of time to build.
Overall, I view this list of stocks to be an opportunity for long-term investors. Any dips in the market over the next several months should be seen as a buying opportunity in any of the companies listed above. With dividend investing, investors essentially get paid for holding on to quality companies, especially if they have been acquired at low prices. Time is the biggest ally for blue chip dividend stock holders as it lets them quietly compound their dividends into more shares paying dividend checks, and build wealth in the process. As my performance with this contest over the past 3 years has shown, slow and steady returns in dividend stocks typically lead to superb investment results over long periods of time.