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Justin Pope
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Graduate of University at Buffalo Class of 2012 with a degree in Business Administration - Concentration in Financial Analysis. Dividend Growth Investor I have a passion for investing and through dividend growth investing, hope to achieve financial independence. I wish to share my thoughts with... More
  • "Beating The Market" - Is It Really That Hard? A Case That It May Not Be 0 comments
    Jun 16, 2013 7:34 PM | about stocks: CL, JNJ, KMB, MMM, PEP, PG, WMT

    You may often hear the term "beating the market". You hear it on tv, it is often the measuring stick of the "professionals" interviewed by CNBC on a daily basis. A lot of times when someone is looking at "getting into the game" and opening a brokerage account to invest, their broker may offer to help them get into some mutual funds. This is often the route beginners take. Don't get me wrong, this is a perfectly OK way to go about investing. You are basically guaranteed results on par with the overall market, and great diversification.

    However if you wanted to take your investing into your own hands, is it such a ridiculous notion that the average "stay at home" investor can obtain results that professional hedge funds are measured by? I believe you can, and it really is not as complicated as it may seem.

    A combination of investing in "top of the line", or "blue chip" dividend growing companies combined with a little patience is a simple recipe for market beating results. As our own "fund managers" we operate under less restrictions as people managing millions and millions of dollars of other people's money. Firms and Hedge Funds must produce "x" amount in "t" amount of time or risk upsetting and losing their clients.

    If you would have invested in the companies below back in 2009, you would have enjoyed above market returns over the last 5 years.

    Johnson & Johnson (JNJ)

    Current Price: $84.70

    Current P/E: 23.1X

    Dividend Yield: 3.11%

    5 Year DGR: 8.2%

    Kimberly Clark (KMB)

    Current Price: $97.86

    Current P/E: 21.3X

    Dividend Yield: 3.31%

    5 Year DGR: 7.0%

    3M (MMM)

    Current Price: $111.03

    Current P/E: 17.5X

    Dividend Yield: 2.29%

    5 Year DGR: 4.2%

    Pepsi (PEP)

    Current Price: $82.13

    Current P/E: 21.1X

    Dividend Yield: 2.76%

    5 Year DGR: 9.3%

    Walmart (WMT)

    Current Price: $74.87

    Current P/E: 14.8X

    Dividend Yield: 2.51%

    5 Year DGR: 13.5%

    Colgate-Palmolive (CL)

    Current Price: $58.82

    Current P/E: 24.0X

    Dividend Yield: 2.31%

    5 Year DGR: 11.8%

    Procter & Gamble (PG)

    Current Price: $78.03

    Current P/E: 19.7X

    Dividend Yield: 3.08%

    5 Year DGR: 10.2%

    If you would of made these companies the cornerstone of your portfolio, you would be looking pretty smart right now! But what do these companies have in common? How do I determine whether these companies can continue to deliver strong returns, and identify additional companies that can perform similarly?

    All of these companies through their dividend increases have shown they have the ability to continuously grow earnings over the long term. Pepsi, Colgate, 3M, Procter & Gamble, Kimberly Clark, and Walmart have all been increasing their dividends annually for at least the last quarter century. These dividend increases at above inflation rates not only increase your wealth over time, but it is also hard evidence that these companies are growing along with their shareholder returns.

    These companies are also resistant to downturns in the economy. The companies all have business models that directly benefit from the rapidly expanding human population. Pepsi, Walmart, Colgate, Procter & Gamble, 3M and Kimberly Clark all provide goods that people need no matter the economic environment. While the stock prices may fall with the market during a time of overall market hardship, the business model of these companies has always remained intact. Certain sectors such as financials and technology are prone to experience severe declines such as the dot.com collapse of 2000-2001 and financial collapse of 2008-2009; as they are not derived from business models of certainty. Technology companies are only able to grow earnings consistently and organically if they continue to innovate. Financial companies are prone to govt. interference as well as use too much risk for my liking to grow their earnings. With companies such as Pepsi,Walmart, Colgate, Procter & Gamble, 3M, and Kimberly Clark - you have business models that can withstand almost any hardship they face.

    The Bottom Line: These stocks can sometimes be labeled as "boring", or "defensive". However, companies such as the above mentioned can be a foundation for a portfolio that provides increasing dividends and market beating returns over time.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: income-investing-strategy Stocks: CL, JNJ, KMB, MMM, PEP, PG, WMT
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