Five Core Stocks For Any Dividend Growth Portfolio

When writing about potential investments, I try to avoid using words such as “must” or “should” or “have to.” Who the heck am I to tell folks what they MUST do with their money?

Having said that, I definitely believe there are companies that deserve serious consideration by practitioners of Dividend Growth Investing – my primary area of focus here at Daily Trade Alert.

DGI is not a get-rich-quick scheme. Doing it properly requires a long-term outlook, as well as the patience to let performance compound over time. It also helps if one has a certain fingers-in-the-ear attitude – the better to ignore political dust-ups, the world’s crisis du jour, conspiracy theories and other examples of “noise.”

As a Dividend Growth investor, I don’t buy bitcoin. I am not looking for the next hot IPO. I’m not into trendy names. I am not going after high-risk, high-reward propositions.

I am not criticizing those who go for such investments.

I simply know myself, and I know they’re not for me.

DGI fits my personal “investing psychology.”

And as I have gotten more experienced at the strategy, I have come to believe that some companies are more appropriate as “core” positions than others are.

Each investor defines “core” a little differently.

To me, it’s a brand-name company that is regarded as one of the leaders in its industry.

It has a time-tested, rock-solid dividend, preferably one that has been growing annually for a decade or more. It has what Warren Buffett calls a “moat” – a competitive economic advantage.

I am unlikely to sell shares of core holdings. I build these positions in size, and I reinvest all dividends because I always want bigger stakes. I could go on and on about what “core” means to me, but I think you get the idea.

Here are five companies, from five different sectors, that fit what I want in core holdings:

JOHNSON & JOHNSON (JNJ)

This health-care giant has almost the perfect Dividend Growth chart. It’s like a staircase that gradually goes upward toward infinity.

(Graphic courtesy of Johnson & Johnson Investor Relations)

Since JFK was in the White House, Johnson & Johnson has raised its dividend every year. So it’s more than reasonable to expect a 56th consecutive increase in 2018 – indeed, it would be foolish to expect anything else.

Whether you’re talking about consumer products, medical devices or pharmaceuticals, JNJ is a major component of the health-care universe.

3M (MMM)

The ultimate industrial conglomerate, 3M has paid dividends without interruption for more than a century and has increased its annual payout for 59 consecutive years.

Everybody knows about Post-it Notes and Scotch tape, but 3M also manufactures products for a wide range of uses and industries: cleaning, health care, home improvement, automotive, architectural design, energy, decorating, safety, office work, sports and recreation, mining, transportation, etc.

One of the biggest mistakes I made since adopting the DGI strategy was selling a big chunk of MMM in 2012 because I thought it was overvalued – at $93/share. I did buy back all I sold (and more) around $140. With it now trading nearly $100 higher, I sure am glad I did.

I won’t make that mistake again.

DOMINION ENERGY (D)

Utility companies are popular with DGI practitioners for many reasons. Most pay dividends, and many have been growing divvies for years. They provide products that everybody needs, and customers have little choice but to pay their utility bills.


(Photo from Dominion Energy Web site)

Investors starved for income have bid up prices for utilities, Dominion being no exception. However, Dominion has raised its dividend more aggressively than most of its peers, and it is one of the few high-quality utes yielding in the 4% range.

The company just announced a 10% dividend raise for 2018 and has vowed more big increases in the years ahead.

PEPSICO (PEP)

I really like this Consumer Staples investment because it is about so much more than Pepsi. Which is good, because soda consumption has been trending lower.


(Presentation from PepsiCo Investor Relations)

Each of 22 PEP brands generates more than $1 billion in annual retail sales. That’s a ton in any industry – and it’s even two more than rival Coca-Cola (KO) has. PepsiCo’s brands include Lays salty snacks, Tropicana juices, Quaker Oat products and Gatorade sports drinks.

Oh, and Pepsi’s dividend is delicious, too. It has raised its payout to shareholders for 45 consecutive years, has grown its payout more than 8% annually over the last five years, and yields around 2.75%.

TEXAS INSTRUMENTS (TXN)

While many companies have been tapping the brakes on dividend growth, this semiconductor behemoth has been stepping on the gas. TXN’s 24% raise this year comes on the heels of last year’s 32% hike.


(Graphic from Texas Instruments Investor Relations site)

Such aggressive dividend growth is why Texas Instruments is still yielding nearly 2.4% despite its price going ever higher and higher.

Throw in other goodies such as growing earnings, revenues and free cash flow, and you have a great business with a fine track record.

TXN is the one company I highlighted here that I do not own. It has always seemed too expensive to me – and that’s been my loss. Maybe I’ll buy some soon!

Wrapping Things Up

While these obviously are high-quality companies, I am only offering them as candidates for further research. In other words, I’m not screaming: Buy, buy, buy!

For one thing, valuations are stretched on all five. For another, it’s important for investors to conduct their own due diligence and to decide how companies might or might not fit their portfolios.

Here’s an example of a pertinent fact that a potential investor in these companies should know: Texas Instruments and 3M are in cyclical industries that can have (and have had) deep drawdowns during recessions.

That would give some investors serious reservations. Others would just shrug off such information.

Only you are in tune with your goals, risk tolerance and comfort level. Investor, know thyself!

— Mike Nadel

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