This article originally appeared on The Div-Net July 7, 2011
There are all kinds of investments available to the average investor. You have stocks, bonds, commodities, currency, real estate…and the list goes on. I think there can be a case made for many different types of investments, and one should always diversify properly. I’m still a young investor (29), and I’ve been very open in my investment thesis; where I want to go and how I plan to get there. My primary investment, which is where most of my net worth will lie, will be in dividend growth stocks.
As such, I believe that one should always have some margin of safety. Having a solid core in which you build your portfolio around will prevent the structure from coming down in a catastrophe (market collapse). I believe that there are many great dividend stocks in the market, but here is a list of five stocks that I believe are solid companies with wide economic moats, very low likelihood of failure, excellent dividend growth and wonderful products.
The Coca-Cola Company (KO)
Coca-Cola is the world’s largest manufacturer, distributor, and marketer of nonalcoholic beverage concentrates and syrups. The firm also sells a variety of noncarbonated drinks such as water, juices, and teas. With almost three fourths of the company’s revenue generated outside the United States, Coke’s footprint extends throughout the world. Coke’s core brands include Coca-Cola, Sprite, Dasani, Powerade, and Minute Maid.
Forward P/E Ratio: 15.7
Dividend Yield: 2.79
Years of Dividend Growth: 49
McDonald’s Corporation (MCD)
McDonald’s generates revenue through company-owned restaurants, franchise royalties, and licensing pacts. Restaurants offer a uniform value-priced menu, with some regional variations. As of March 2011, there were 32,800 locations in 117 countries, including 26,400 operated by franchisees/affiliates and 6,400 company units.
Forward P/E Ratio: 15
Dividend Yield: 2.89
Years of Dividend Growth: 34
Wal-Mart Stores, Inc. (WMT)
Wal-Mart is the largest retailer in the United States and is gaining ground internationally. The firm is divided into three segments: Wal-Mart U.S. (63% of revenue, 3,800 stores), international (24%, 4,200), and Sam’s Club (12%, 600). Wal-Mart U.S. revenue consists primarily of grocery (49% of revenue), entertainment goods (13%), and hardlines (12%).
Forward P/E Ratio: 10.8
Dividend Yield: 2.75
Years of Dividend Growth: 37
Johnson & Johnson (JNJ)
Johnson & Johnson ranks as the world’s largest and most diverse health-care company. The company comprises three divisions: pharmaceutical, medical devices and diagnostics, and consumer. While the pharmaceutical division currently represents 35% of total sales, we expect patent losses and the Synthes acquisition to reduce this proportion to 25% over the next 10 years, with the device segment picking up the majority of the share.
Forward P/E Ratio: 12.7
Dividend Yield: 3.43
Years of Dividend Growth: 49
The Procter & Gamble Company (PG)
Since its founding in 1837, Procter & Gamble has become the world’s largest consumer product manufacturer, with a lineup of famous brands. The brands are sold through three global business units and include Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. Since 2001, the company has doubled the sales it derives from developing markets, acquired and integrated Wella and Gillette, and sold its pharmaceutical and coffee businesses.
Forward P/E Ratio: 14.8
Dividend Yield: 3.30
Years of Dividend Growth: 55
There can be a case made to double or triple this list and, ultimately, I hope to have 30 or more dividend stocks in my portfolio from which I draw income. However, I think these five are extremely strong businesses that an investor could be safe to build a core around. I’m actively invested in all five companies and am adding to my positions as capital is available.
Full Disclosure: I’m long KO, MCD, WMT, JNJ, PG
Thanks for reading.