Four Stocks That Aren’t On My Radar… But Perhaps Should Be On Yours

searchingThis is an article that I’m putting together based on reader feedback. You speak (or comment, I should say) and I listen (or read, but you know what I mean).

Many of you have been interested in knowing which stocks in my Freedom Fund I’d be interested in buying right now if I weren’t already fully weighted.

What’s happened over time is this: I’ve invested heavily in a number of high-quality companies that I believe in for the long term. And I invested over and over again until a large position was built up – as large as I’d ever want that particular position to be.

You’ll probably find this happen to you over time as well if you maintain a fairly diversified portfolio and consistently and aggressively add capital. At some point you’re probably just going to commit as much capital to a specific stock as you’ll ever want to – the growth of the company should allow that position to grow over time, in tandem with the rest of the portfolio and positions you’re building around it.

While it’s a wonderful problem to have, it also creates a conundrum of sorts. Some of you readers out there aren’t as far along in terms of portfolio construction/value as I am. And so those opportunities I’ve already capitalized on in terms of aggressively adding capital until I couldn’t anymore have disappeared off my radar to a degree, which means I’m not really discussing them much any more. However, many of you are still in the early stages of building up your portfolio, which means your universe of potential stocks is much larger than my own. While some stocks have probably permanently fallen off my radar, that doesn’t necessarily mean they should be off of your radar.

Well, I’m going to discuss a few stocks that I’d be buying today if I didn’t already have such large positions. So this is basically looking at the fundamentals, qualitative advantages, and valuations as they stand right now and saying that, if my portfolio and these positions were 1/2 their current size or less, I’d very likely be buying shares in these companies.

What you see below are four stocks in my portfolio that I’m not currently interested in buying because of my exposure, but that I think those just starting out or maybe not as far along in terms of portfolio construction/value should consider. Keep in mind that while these picks are fairly diverse in terms of sector allocation, this doesn’t mean you should build a portfolio consisting of just these four stocks. Rather, I think all of them are attractive picks right now based on their individual quality and valuation, and should be strongly considered as part of a larger and diverse portfolio.

Johnson & Johnson (JNJ)

Johnson & Johnson researches, develops, and markets a number of products in the healthcare space. They are currently the world’s largest and most diverse healthcare company, with 265 operating companies located in 60 countries.

Perhaps my favorite stock of all. About 43% pharmaceuticals, 37% medical devices, and 20% consumer products; it’s 100% dominant.

Just some quick facts about Johnson & Johnson: 70% of fiscal year 2014 sales came from the #1 or #2 global market share position. They have 24 brands or platforms that generate over $1 billion in sales each. And they’re one of only three US-domiciled companies with a AAA credit rating.

Healthcare spending is likely only to increase as the world gets bigger, older, and richer. The long-term tailwinds are clearly evident here, and JNJ’s diversification is unlike any other company in the industry. They’ve increased their dividend for the past 53 consecutive years, which kind of speaks for itself. But it’s not just the track record; they continue to grow the dividend at a very robust rate even 53 years in – the ten-year dividend growth rate is 9.7%, with the most recent increase north of 7%. The stock yields 2.97% here, so you’re getting a pretty attractive yield along with that healthy growth.

The stock trades hands for a P/E ratio of 18.11, which is just slightly higher than that of its five-year average of 17.50. Growth over the last decade has been slowed somewhat by currency concerns, recalls, and litigation. But the company’s dominant position ensures the strong likelihood of JNJ’s increasingly profitable position for many years to come. Morningstar has it fairly valued here and so does S&P Capital IQ. Paying a fair price for a slice of a company like JNJ is never a bad idea.

I currently have 100 shares of JNJ. It’s my first-ever $10,000 investment. Even at 7% annual growth, that position should roughly double in value in a decade. So it’ll remain a fairly large position for some time. But if I were in a different place, I’d be very interested in this stock here. After all, it’s such a large position because I loaded up aggressively. I’d do it the same all over again if I had to.

Philip Morris International Inc. (PM)

Philip Morris International Inc. is the world’s largest publicly traded tobacco company, manufacturing and marketing a variety of tobacco products. Their products are sold in more than 180 countries, excluding the US.

This was my best long-term idea at the beginning of 2015. Still is. The valuation remains extremely compelling even while the company continues to surprise time and time again.

Their products are addictive, the economies of scale are huge, and the pricing power is huge. Due to the addictive nature, the demand for PM’s products remain largely price inelastic. Excellent profitability, including huge margins, are a hallmark of this business (and other large, high-quality tobacco firms). And they sport a 28.3% share of the total international cigarette market, outside of the US and China with the world’s #1 brand in Marlboro.

PM’s volumes continue to decline, but new potential growth categories like electronic cigarettes and reduced-risk products give new life to the industry. The strong dollar has weighed on PM (and other global firms), but it’s been especially notable in their results because they have no US sales. Adjusted diluted EPS for FY 2014 would have been up 7.8%, after factoring out currency. Currency-neutral growth remains quite strong, underscoring the quality of the business even while those who think the current currency situation will be extrapolated out forever avoid the stock. But they’ve increased the dividend for the past seven consecutive years (ever since being spun-off from Altria Group Inc. (MO)) with a five-year dividend growth rate of 12%. Couple that growth rate with a yield of 4.75% and you can see why this is an attractive investment.

PM is available for a P/E ratio of 17.72, which is based off of depressed earnings on the back of a strong dollar that’s hurting profit. Nonetheless, I think there’s a very compelling investment case here. Just keep in mind that profit will remain vulnerable to the dollar. But if you wait until currency turns around, it might be too late to initiate a position at a solid value. Morningstar has PM fairly valued at $92.00, while S&P Capital IQ has it fairly valued. Again, fair value or better for a quality business with an addictive product seems like a pretty good bet to me.

I own 115 shares of PM, so it’s just completely off my radar… permanently. But that doesn’t mean it’s not a good investment opportunity for those with the capital and space in their portfolio. I bought aggressively over the years, with my last purchase not far off from where the stock is priced at now. Of course, you’ll have to make sure it fits with your ethics.

Wells Fargo & Co. (WFC)

Wells Fargo & Co. is one of the four largest banks in the US, with diversified financial offerings across retail, commercial, and corporate banking services.

I just recently penned an article on WFC, pointing out that Warren Buffett continues to buy the stock even though it’s the largest position in Berkshire Hathaway Inc.’s (BRK.B) common stock portfolio. Why do you suppose that is?

Well, perhaps it’s the fact that they have access to over $1 trillion in core deposits that acts as an extremely low-cost source of capital? That kind of capital allows WFC to seek out attractive returns without taking on a lot of risk. The bank has more than 70 million customers that rely on them for services, and their cross-selling ability is unique in the banking industry. Banking is changing, but it’ll likely always remain ubiquitous and necessary. And I certainly see a lot to like here across the fundamentals.

As far as the dividend goes, they’ve increased it for the past five consecutive years after cutting it during the financial crisis. I think they’re doing a pretty good job righting past wrongs with a five-year dividend growth rate of 22.5%. A yield of 2.67% isn’t the largest in the industry, but it is attractive and well in excess of the broader market. I happen to believe that WFC will continue to grow that dividend for years to come with the potential of rising rates, a low payout ratio, and scale they never had before the crisis. Even better, their revenue mix is nicely diversified between interest income and non-interest income.

WFC’s P/E ratio is 13.73, which is above its five-year average. But this stock spent large parts of that time frame at a rather cheap valuation. Both Morningstar and S&P Capital IQ think the stock is 10% undervalued right now. I recently valued it a bit lower than that, but it’s certainly not expensive right now. I don’t think it’s a steal, but having Buffett and Berkshire on your side doesn’t hurt. And, hey, you’d have me on your side as well!

My position of 90 shares is valued a bit over $5,000 right now. It’s certainly not as large a position as PM or JNJ, but, in my view, the risks involved in investing in a bank are quite different, and so I feel comfortable maintaining a relatively smaller position there. I’m not saying I’ll never buy more WFC stock, but it’s just not on my radar right now as I continue to build up other positions. There’s a good chance that the 90 shares I currently own are all I’ll ever own.

Kinder Morgan Inc. (KMI)

Kinder Morgan Inc., through it subsidiaries, owns and operates a large network of pipelines and terminals that allow it to transport, store, and process energy products like natural gas and crude oil.

I last purchased shares in KMI in December 2013, so it’s been off my radar for some time now. But that doesn’t mean it’s not a great long-term investment, even now.

With more than 80,000 miles of pipeline, they are currently the largest midstream energy company in the country. And that infrastructure is incredibly valuable, which allows KMI to operate a “toll booth” type company where it collects fees when products run through its pipes.

KMI is one of the most interesting, dynamic, and potentially lucrative dividend growth stocks one can possibly purchase. Not far past its purchasing of all underlying partnerships and entities so as to merge into one company, the company continues to amaze. Distributable cash flow was actually up in the first quarter of fiscal year 2015 versus the same period of fiscal year 2014, representing the quality of the business, value of the infrastructure, and the fact that a large portion of their revenue is fee-based. The stock has increased its dividend for the past five consecutive years with a dividend growth rate of 31.9% over the last three years. And they continue to reiterate guidance relating to dividend growth of 10% annually through 2020. Not too many companies out there put themselves out there like that in terms of forecasting that far out and at that kind of aggressive rate, especially when the stock already yields a very attractive 4.61%.

The stock is difficult to value because of its MLP legacy. But a dividend discount model analysis with a 9% discount rate and a conservative long-term dividend growth rate of just 6% gives me a fair value of just under $68. Morningstar gives it a fair value of $43.00 and and S&P Capital’s 12-month target price isn’t too far above that. Either way, I think this stock is rather attractively valued here.

I haven’t bought shares in more than a year now, and I don’t anticipate buying shares at any point in the future. It’s currently my third-largest position and it’s in a sector (Energy) that I’m already overexposed to. Nonetheless, this is a great stock with a very attractive yield, incredible dividend growth guidance looking out over the next five years, and a network of infrastructure that is unrivaled. And there are few better examples where management’s and shareholders’ interests are better aligned – Richard Kinder, the current Chairman and CEO, owns more than 200 million shares (the largest single shareholder) and lives off of his dividend income rather than a salary (he earns just $1/year in salary).

Conclusion

So what you see are stocks that I would be buying right now if I weren’t already as heavily allocated to them as I’ll probably ever want to be. They, as a group, represent a substantial portion of my portfolio. And I think they’re all high-quality business with excellent long-term growth prospects trading for fairly attractive valuations right now.

Not only that, but they’re a diverse group in terms of sectors of the economy, growth, yield, geographical exposure, and business models.

I almost threw up Norfolk Southern Corp. (NSC), but I think there’s still a chance I might add a few shares there before I’m all done. We’ll see. I do think NSC is attractively valued here and would make an excellent investment. I’m just busy buying up Union Pacific Corporation (UNP) right now.

And WFC is borderline. I’m not saying I’ll never add more, but it’s somewhat unlikely. I can, however, say that I find it strongly improbable that I’ll ever buy more JNJ, PM, or KMI. And that’s no indictment against them. Just a reality of a good problem to have in that I’m all stocked up there.

I hope those readers who were asking me to put this together find value in it. I plan to revisit this topic on an annual basis as more positions become filled up over time as the portfolio grows. I suspect I’ll have at least a couple of names to discuss in 2016 if I’m fortunate enough to continue investing at my recent pace.

Full Disclosure: Long JNJ, PM, MO, KMI, NSC, and UNP.

What about you? Any stocks in your portfolio that you’re unlikely to buy more of at any point in the future?

Thanks for reading.

Photo Credit: ratch0013/FreeDigitalPhotos.net

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163 Comments

  1. Hey DM,

    This was a great, informative read for me! I totally understand what you meant at the beginning in that you’ve already built and beefed up your positions in these fantastic companies; but hey now you have some more time to sniff out some underdogs!

    All of these companies are just great, but JNJ and PM (though I’ve also found MO to be attractive) are probably the ones I’m most interested in as well.

    Best regards,
    DB

  2. Been building up some positions in XOM and CVX over the past months, but getting a little hesitant to buy more even though they are some of the better long term deals around.

    Would love to buy CL, DIS, etc. but see the oil super majors just so much cheaper right now. BBL is also tempting but I don’t know much about mining so I’ll leave it at the nominal amount I have unless I start delving into BBL annual reports and the mining sector in general.

  3. Great stocks for anyone who doesn’t have them already. They just sit there being boring and making billions of dollars. WFC/KMI/JNJ are all in my top 10 biggest positions already, so I can’t add any more there unless they go on a giant sale. My huge stake in LO is keeping me from buying any more Phillip Morris for now, but once the merger finally goes through (it just got officially approved by the FTC) the big pile of cash is getting sent straight to PM.

  4. All great suggestions, thank you. I already own JNJ and WFC as well so they are out. I have MO so PM is towards the bottom of my list. I’ll definitely take a close look at KMI though.

  5. JnJ is definitely on my top 4 list of US companies I would like to hold long term once the opportunity arises to invest south of the border. KMI might have some potential as well. 🙂 Oh the problems of either having too many companies on the wishlist, or not just yet the ability to get them! Thanks for sharing again!

  6. Kinder Morgan is a fantastic stock. After I’m finished binging on reits I’m going to pick more up. I like JNJ and PM but am hesitant to invest in bank stocks. Great article!

  7. DB,

    I’m so glad it provided some value for you. You’re exactly the kind of reader this was aimed at. These are all really great companies, but I’ve been fortunate enough to stock up on them over the years. But if I were starting over again, I’d be very interested in all of them here. 🙂

    Cheers!

  8. Excellent post, Jason.
    I own 3 of the 4 companies – but only KMI is fully weighted. Ive been thinking a lot about PM as well and I think I would like to dabble in it a little bit even though the volumes are declining. Some metrics sure are concerning, but I think overall – a little bit of exposure in the portfolio would do well overall.

    Thanks for sharing another great post
    R2R

  9. Steve,

    Yeah, the supermajors are interesting. Their current value as a group depends a lot on how the downstream operations hold up here and how long oil stays cheap. I last bought CVX around $102/share, but that was in 2012 when operations were much healthier. Its forward P/E ratio is near 18, which is very high for them. But you get that healthy dividend to pay you while you wait. We’ll see how it goes. 🙂

    Thanks for stopping by!

    Best regards.

  10. Justin,

    I’m with you all the way. The more boring, the better. 🙂

    I haven’t yet earmarked that cash from the LO/RAI merger. I might just throw it at RAI. I once read research that discussed how well investors would do just by taking cash from a merger/acquisition and throwing at the acquirer/new company. But I’m loath to do that because I’ve long wanted to reduce my tobacco exposure by buying around some of these positions (and lightening LO along the way). We’ll see. Should be fun!

    Best wishes.

  11. All very good stocks, own KMI and JNJ. Would like to add more JNJ when we can. Kinda wish we picked up more JNJ a couple of years ago. 🙂

  12. Ken,

    I suspect quite a few investors are already maxed out on at least some of these stocks. But there are also quite a few readers out there just starting out, and so I think they should definitely consider taking a good look at some of these stocks. I wouldn’t have more than $10k invested in JNJ if I didn’t think it would do well.

    KMI offers a lot to like as well. When the CEO is living off of the dividend income, his interests are aligned with mine. 🙂

    Cheers!

  13. DM,

    Thanks for writing this and sharing your best ideas with the community. We only own JNJ and PM from the list and will continue to add to both over the next few years as we build our positions. We, too, are busy riding the rails at present but are always keeping an eye out for dips in PM and JNJ. Keep up the writing. The readers are happy you left your service manager role at the car dealership. Perhaps even more so than you. 😉

    All the best.

    FD

  14. DW,

    So many stocks, never enough capital. First world problems and all that. 🙂

    Best of luck finding the capital and the opportunities at the same time. Always nice when the two coincide!

    Best wishes.

  15. superspyguy,

    Thanks so much. Glad you enjoyed it. 🙂

    Yeah, the REITs look pretty strong here. WPC and OHI remain near the front of the line in terms of which stocks will be getting my capital next.

    Have fun over there.

    Cheers!

  16. This was timely for me, Jason! I haven’t yet made a purchase this month and appreciate the suggestions. I currently own PM, JNJ, and KMI and have been considering adding more to all three. Thank you!

  17. R2R,

    PM’s volumes are declining, but they’ve been so for some time now. I actually think they’d be fine for some time without the new products in the industry, but that just breathes even more life and excitement into this investment. Gotta love currency-neutral growth north of 7% annually even with all of the headwinds there. When currency reverts, there could be some exciting results happening here. Meanwhile, the yield is very attractive. We’ll see how it goes!

    Best wishes.

  18. Tawcan,

    JNJ is just a fantastic company. They have so many individual operations with just a ton of products across the healthcare spectrum. It’s honestly one of my safest bets, in my view. It would take some kind of massive worldwide calamity for JNJ to go under. Since that’ll probably never happen, I’m looking forward to being a shareholder until I’m dead. 🙂

    Take care!

  19. Thanks for the interesting article. I think too often people get caught up in looking for new ideas when sometimes the best ones are already in plain sight. Theres still plenty of room for more JNJ in my portfolio but KMI is probably maxed out unless theres a huge sale in the future. I also have TGT and MCD that are maxed out and I might possibly look to trim my positions there. Other than those almost everything else is fair game. And im looking to start a position in UNP soon and make that a good part of my portfolio over time as well.

  20. FD,

    Thanks so much. Very, very kind of you. I’m incredibly happy to be able to pour my attention into the blog. I actually had a totally different article already written and ready to be published today, but quite a few readers were asking me in the comments section on the last article about stocks that I’d be looking to buy if I were starting over again. So I started this article around 8 p.m. after a coaching session and eating a quick dinner. Always busy. 🙂

    Glad you found some value in the article. If I were starting out today, I’d be aggressively pursuing all four of these stocks, along with the railroads and a few select REITs. You’d have a decent little portfolio with just those ideas, but that would of course just be the base upon which to build a masterpiece.

    Thanks for stopping by!

    Best wishes.

  21. Kate,

    No problem at all. Hope it gave you some fresh insight.

    I certainly didn’t do a full analysis on any of the stocks, but I tried to provide a quick refresher on why these stocks should be on your radar. And there are a couple linked articles up there that add even more depth. 🙂

    Thanks for stopping by. Hope you have fun deploying capital over the coming weeks!

    Cheers.

  22. JC,

    Yeah, I agree with you there. Some might look at my portfolio and see 56 positions and think I just went from 0 to 56 quickly. But it took five years to get there, and I was aggressively adding to certain names over and over again when the value was there. In fact, I historically bought in chunks, building up positions by buying somewhat repeatedly until something else came along that was more compelling.

    I hear you on TGT and MCD. I’m also maxed out there, but I didn’t add them to the list because I don’t think either is particularly cheap right now. But they might make next year’s list. 🙂

    Best wishes!

  23. Jason,

    Thanks for the great article. Among all of your articles, this is my favorite. I’m in a portfolio building situation similar to the one you were in a few years ago, so it’s quite helpful to see which of your portfolio cornerstones you’d still accumulate if the weightings were lighter. I hope this topic remains a part of your regular rotation. Thanks!

  24. dave,

    Thanks so much for the feedback. I’m always trying to provide maximum value. It was due to feedback that I wrote this article on Thursday evening, just before publishing it. I definitely plan on revisiting this topic every year as valuations and opportunities change. There are a few other stocks that I’m not actively adding to (like AFL and MCD), but I think the valuations and growth prospects are best for the stocks I listed above, which is why these are definitely the four I’d be buying right now if I were to start over again.

    Of course, all the stocks I’m buying right now also have compelling fundamentals and value. But these stocks deserve attention here as well. 🙂

    Thanks for dropping by!

    Take care.

  25. Jason,

    Your selection of companies should be the first start of portfolio building for new investor willing to achieve FI in the future. You should call it the Jason fund. you could even make it as an index 🙂

    Love PM and growth has huge potential, 1st quarter was just a very very good news, so the rest of year should be perfect.

    Cheers,

    RA50

  26. Ive been picking up shares of JNJ and PM lately, while I think I am fully vested on WFC and KMI. Meanwhile I pulled the trigger on NSC yesterday on my first taste of railroad, hopefully this isn’t my last. REITs at this current level is getting attractive but I think it can still go down with the issue of increasing rates.

    PG is a good pick too if one is starting out his portfolio.

  27. RA50,

    Ha! Yeah, a nice little portfolio all by itself up there. 🙂

    I was also impressed with the first quarter’s results for PM. The strong dollar is really masking their growth and potential. Great business, even with all of the other problems going on (plain packaging, illicit trade, etc.).

    Thanks for dropping by!

    Best regards.

  28. FFF,

    All aboard for more dividends. Gotta love the railroads. 🙂

    I’d love to pick up more PG at some point. Recent growth has been quite disappointing and I haven’t really seen a compelling value there on that stock in some time now. But a great stock at the right price. Hopefully, the new initiatives add focus and growth again.

    Cheers!

  29. Over 200 million shares of KMI = over 300 million in annual dividend income. What do people do with that much money?

  30. joel,

    I couldn’t imagine!

    I sometimes think about how different my life might be if I had unlimited money. And I just honestly don’t think it’d be much different. I’m quite content and really very happy.

    It’s funny, but this reminds me of a true story. I had to deposit a few checks the other day at the bank. When I was all done, the teller asked me if there was anything else I needed. I responded no. She then asked if I wanted a balance check. I said told her I didn’t need it. Then the teller next to her asked me if I wanted a million dollars. I thought for a second and said (no lie), “Actually, I don’t need that either.”

    What a relief to answer that question that way. Even if it was rhetorical.

    Cheers!

  31. Hey Jason,
    Good stuff, I just recently bought JNJ and plan to grow that position quite a bit too.

    A little bit off topic and probably already answered at another point: Will you ever publish your ebook as an actual book? I don’t own an ebook reader and am not to fond on reading books on screen ( blogs are a different story 😉 and also i would love to place that book right next to the intelligent investor and the buffet biography on my bookshelf.
    And here another idea as many people ask you about the 4 percent rule. How about a dividend investor 4 (exact number to be determined) percent compounding and re-investing rule. I mean most people visiting here actually know and live the rules of a dividend investor. But what is the formular to get the snow ball running… How much fresh capital is sufficent to deploy for the average guy every month. How often should the dividends be reinvested ( wait for them to build up or shoot right away). I for example get around 100 usd per month out of dividends which does not move the needle buy itself yet without adding significant new capital every time. It looks like you are just at a point where the snowball starts to move itself, but obviously you are still pushing it and making it roll faster.
    Thanks for all your hard and great work!
    Ben

  32. Ben,

    I don’t have any plans to print the book right now. I originally thought if the demand was strong enough for the e-book at $4.99, that would encourage me to publish a paper version. I’d have to charge quite a bit more for a traditional book to compensate for the publishing costs, so I wanted to see strong demand at that lower price point. And I really of wanted to see at least 1,000 e-books sell right off the bat to really justify that idea. And it’s just not even close to that, so I’m probably just going to keep it as an e-book for now.

    I’m not real sure what you’re asking there in regards to getting the snowball running. The right amount of capital to invest regularly really depends on one’s goals and capital availability. As a general rule of thumb, saving 50% of your net income puts you on track for financial independence in around 15 years, depending on the yield of your portfolio. So that’s the number you should be shooting for above all else – saving at least half of your net income. As far as reinvesting dividends, they should all be reinvested every single month until you’re living off of that income. Of course, running into an emergency might mean you need to temporarily shift the way you use capital, but that’s why you should have an emergency fund, available credit to tap, and that large gap between income and expenses (which acts like a shock absorber by itself).

    Hope that helps! 🙂

    Best regards.

  33. Jason,

    This is a great idea for a regular post, and I’m glad you followed up on the comments from the previous post. I just came upon your blog a little under a year ago, but have been a faithful reader since. So far those of us just getting started, this is a fantastic resource. Thank you!

  34. Hi Jason,
    I think a very helpful articel for people just starting to give an idea to really good investments. I have JNJ and KMI at the moment and I like them both. PM will be a first buy in July, but I have already a nice position in MO. I have not many banks at the moment so I don´t have WFC and I´m looking not too closely to it. My only bank is Bank of Nova Scotia at the moment and I have only a small position of 40 shares. But may be there is room to invest in the second half of the year in the sector. With your four suggested companies you can´t do wrong on the long run. I want to add much more KMI (I love this company :)) and more JNJ in the future. I have a little bit a different strategy than yours where I have bigger positions in companies I really like and on the other side I have only lots of smaller positions of around 2000 € to companies I like, but don´t want to get too deep in it. A typical small position would be for me for example Bank of China (BACHY) with good yield and good growth. But its a bit more risky (really?!) than WFC, so I don´t want to have a big position there. A big position will be BBL with 250 shares at the end (I own now 150).

  35. Mr. Mantra, you pay $27.00 for internet and TV. What kind of internet you are using that is so inexpensive. I know that my question is not related to the topic you want to talk about but your answer will be greatly appreciated. Thanks in advance.

  36. Jason,
    Never say never. As you keep adding capital and selectively re-investing dividends, your portfolio is growing faster than these stocks. In 5 years you may easily find that these positions are not so relatively outsized and it is time to pad them a little more. In fact I would bet on it.

    Do you have rules of thumb for yourself like “don’t increase position in an energy stock that is already over 3% of total portfolio?”

    Another question: Have you thought about “Walmart rule” situations where if one of your holdings were to have incredible growth and become, say, 20% of your total portfolio, would you hold it all or would you sell some to re-balance?

  37. Hey Jason,

    Love your writing and coverage of companies! I have learned a lot from your experiences. I recently started my own freedom fund and due to valuations, have been buying up many companies in the energy and materials sectors: XOM, CVX, NOV, BP, and BBL. I recently entered JNJ when they went sub-$100, however.

    Obviously you don’t want to get too overweight in one industry as your portfolio gets larger but when you say you won’t buy anymore of those four companies because your position is “maxed out,” what do you mean? How do you calculate when a position is maxed out especially if those companies are attractively valued? Maybe there are other young readers who don’t know what that means and it might help them 🙂 Thanks Jason!

    Kyle

  38. Josh,

    I actually have you readers for the great idea. I put this together last night after some recent feedback asking for something like this. Happy to oblige. 🙂

    Glad you found some value here!

    Best regards.

  39. olli,

    I hear you there on the banks. I also don’t want to go too crazy on the banks in general, just rather trying to own equity in some of the best banks around as part of my overall Financials exposure. With bigger positions in some other banks over there, it makes sense that you’re not that interested in WFC.

    PM and KMI definitely offer a lot to like. There aren’t that many stocks in the market that offer combinations of yield and growth like that along with solid fundamentals. They’re both a bit further up the risk scale than I might like due to indebtedness, but it’s not so bad that I feel uncomfortable investing significant sums of money (for me). 🙂

    Cheers!

  40. Young,

    No problem. We have Comcast. But Claudia and I split that bill, so that represents just my half. We split major household expenses like rent, utilities, and groceries. That $27 represents my half for internet, basic cable (basic local channels like NBC, ABC, etc.), and taxes… so it’s “out the door”.

    Take care!

  41. Grant,

    Good point there. I suppose it comes down to how fast these companies grow and how many positions I eventually end up with. I’m a bit unique in terms of my asset accumulation phase being short relative to my entire life and relative to probably most people’s accumulation phases. My goal is a portfolio of $500k, which should generate enough passive income to live off of, or at least enough to probably not really worry about working much anymore. If JNJ grows at a 7% annual rate (a rate I hope they can grow at), that would put that position at somewhere around $16k or so in seven years. So that would be a good-sized position then. We’ll see, but I think I’d probably be pretty comfortable with that number relative the portfolio at 3.2%. I imagine that I’ll end up with 70 or more positions before I’m done, which means that would be far more than a full position (a full position being a bit over $7,000 at 70 positions).

    The only rule of thumb I have is that I don’t want any one stock to be more than 5% of the portfolio over the long run. So I hope to have no one stock any larger than that by the time I’m done buying stocks.

    I would rebalance by selling if one stock became 20% of my portfolio. That’s for sure. But I don’t anticipate it happening. It’d be a good problem to have, however. 🙂

    Best wishes.

  42. Kyle,

    Thanks so much. Really appreciate the kind support. 🙂

    Sounds like a good move over there. I’d be a bit more interested in energy and materials if I weren’t where I’m at right now, but I’d also still be cautious and really keep my eye on how some of these companies hold up with earnings over the year.

    That’s a good question there in regards to maxing out. I tried to explain it in the article, but maybe I didn’t do a good job. A “full position” or “maxing out” a stock/position is when it’s the same as what you’d get when you divide your portfolio by the number of stocks you own. You can see I have a portfolio worth about $196k spread across 56 positions. That means a “full position” would be 196/56, or $3,500. When I start getting to a spot to where a stock is double or triple that amount, that’s definitely “maxed out”, in my view. And that’s because with natural organic growth of the company (assuming you stop buying), that stock will remain a large position for some time, even while you continue to add stocks around it. How much you find yourself maxed out depends on how far along you are in terms of building your portfolio out and how much more capital you’re still going to deploy. As I noted in a comment above, doing the math shows that JNJ growing even at a somewhat average rate over the next seven years would mean it would still be a very large position even if I stop buying the stock and my portfolio eventually grows into my target $500k.

    Hope that helps!

    Best regards.

  43. Jason,
    Awesome article. It really is appreciated that you are listening to your readers. It also makes me feel good knowing that I own 2/4 picks discussed. JNJ & KMI. I was literally a day late with jumping into PM, then that day it SHOT UP, I didn’t pull the trigger, it was deflating knowing that I could’ve gotten it 7-8 dollars cheaper a share. It’s still on my watchlist as its trickling down a bit.

    Hey, I jumped into OHI. Obviously I did my own homework, but your initial read perked my interest.

    Quick question, and I’m sure you’ve addressed this and I may have missed it. Is your portfolio strictly DIVIDEND paying stocks? I’m a little torn on my own portfolio. I own 13 stocks. 11/13 pay dividends. The two that don’t I bought fairly early in my journey and am keeping them due to their huge potential down the line. However since then, I’ve only bought dividend payers. Lately, there’s a few out there that I really like, but don’t pay dividends. I’m really high on FEYE.

    Do you have a firm rule of NO DIVIDENDS no LOVE? Haha.

    Keep up the great reads.

    Brian
    Lanc, PA

  44. Good day Jason, their is no question that these are all good stocks to have in one’s portfolio. I am Long WFC, JNJ, KMI. I just started a position in UNP yesterday 25 shares at 101.00 and will be glad to add if it pulls back any more. have a great day

  45. Thanks for explaining that! I have heard so many DGIs on Seeking Alpha mention “maxing” a position but I did not know that what they meant was they divide their portfolio value by total positions to get that “max” number. I assumed that each investor had a number in mind (i.e. say you wanted JNJ to be $5000 and XOM to be $1000) and that’s how they determined a max; which some may very well do. Thanks Jason!

  46. Brian,

    Thanks! I definitely hear what you guys are saying, so if there’s strong feedback/requests, I’ll respond.

    “Do you have a firm rule of NO DIVIDENDS no LOVE? Haha.”

    Correct. No dividends, no love. 🙂

    My goal is to live off of the growing dividend income my portfolio spits out one day. Any stock not serving that purpose is dead weight to me.

    But that’s just me. Some investors find room for stocks that don’t pay a dividend. Some investors even strictly invest in stocks that don’t pay a dividend. All really depends on what suits you and your goals.

    Cheers!

  47. michael,

    I’m right there with you. I’m also hoping we see UNP below $100 over the short term. Would love to average down once again. 🙂

    Keep it up!

    Best wishes.

  48. Kyle,

    Indeed. Every investor has different goals and strategies. I’ve seen some have one or two major positions, with a bunch of smaller, ancillary positions. So someone’s idea of being maxed out might be $20k in one stock out of a $50k portfolio. But when talking about a “full position”, the math I just went over is generally what you’re looking at, assuming someone sticks to fairly equal weightings across the portfolio. 🙂

    Cheers!

  49. Jason,
    PM and JNJ are my top 5 holdings. I wouldn’t mind adding more since I am still accumulating. I have had WFC on my watch list since the beginning. Unfortunately, my capital was low when it was near the low 50s, and now, I waiting for the next entry point.

    Keep up your good work!

    D4s

  50. D4s,

    Yeah, if I were in your spot, I’d be on these stocks. 🙂

    WFC seems more or less fairly valued here. Buffett is still actively buying more. That would seem to bode well. We’ll see!

    Thanks for dropping by.

    Best regards.

  51. Nice list.

    Johnson & Johnson are definitely on my radar. I am looking to build my healthcare exposure a bit more at the moment as well as my geographical diversification. I like J&J for their consumer health as well as pure health/pharma side. In many ways it mirrors the make-up of one of my current holdings, GlaxoSmithKline.

  52. Hey Jason,

    You were quick and informative with this blog. No sooner was it suggested (another reader worded it perfectly so all I did was like what they suggested) and you had it up online the following morning… gotta love that turn around time / dedication.

    When I read the persons comment, it hit me like a brick. In the back of my mind, I was wondering the same thing (stocks you would be interested in if you weren’t already heavily weighted) but I never thought to ask. So, props to you both.

    I had some funds available yesterday & a free trade so I purchased a few PG – it would have been nice if I held off until I read this informative blog but I don’t regret my decision… as long as my money is working for me.

    However… now you have created a “first world problem” for me ha, ha. Or should I say, you have made my already existing problem even more difficult. When my next bit of capital comes along, I now have to decide between OHI, NSC, KMI, PM, JNJ & WFC (roughly in that order too). Looking for the biggest bang for my buck!

    Again, all your help, speedy responses & the fact that you really take in what your readers have to say / ask… It’s brilliant!!

    WELL DONE!

  53. Love the idea of building a core portfolio of quality stocks from around the world, limiting each to no more than 5% of the portfolio and filling in with smaller percentages of reits, some higher dividend payers and rounding it out with some that are more on the growth side with a modest but growing dividend. Since you have readers at all phases of portfolio construction as well as life itself ( some seniors looking for income and some early twenties just starting out) , I am going to ask you possibly to expand this excellent article, keeping in mind all readers, and write an article about 12 stocks ( we can call them the dirty dozen…lol) from anywhere in the world, that you would buy, hopefully never sell, would have no problem putting 5% into, and would form the solid base for anyone’s portfolio. In other words, the Mantra All Star team of stocks, the best 12. We shall call it Mantra Hathaway, based out of Sarasota. Would be an interesting read for every type of investor.

  54. Just curious, how would you compare OKE to KMI? Could OKE do some restructuring similar to Williams to bolster the stock? And is there any potential for KMI doing this, or they already have? Thanks in advance.

  55. Thanks so much for this article and for your thoroughness when answering questions. Like a reader above I too didn’t really understand what ‘maxed out’ meant.Now I do and will start looking at my positions and choices in a different way.
    Also I have been meaning to thank you in general for writing. I found you through Rockstar Finance about three months ago and appreciate the encouragement and support for those new to dividend investing.
    I had always wanted to invest through index funds but since I am trying to live an intentional life I ,as a health care professional, felt I could not sleep at night if I invested in Coke ,MCD never mind Philip Morris. So I reluctantly traded as best I could…but it really felt like being out on a limb.
    Since reading your blog on DI ,I have come to see the beauty of DI. There are a lot of dividend stocks that I can invest in that I am comfortable with personally and financialy that can provide me eventually with the freedom I want…Yeah!
    So thank you again. I learn something from every recommendation you make.

  56. Over the past couple of months I have really stocked up on O, OHI, and BHP. I can’t see myself buying anymore of any of those 3 for a while. I certainly want to add some more JNJ though to my portfolio.

  57. Dude, well done thank you!

    Being a young investor and having a little capital to invest this month, this article couldn’t have been more timely.

  58. My favorite right now is HCP. Unusual opportunity to grab a dividend aristocrat at almost 6% yield.

  59. Great article! I have some JNJ and definitely want more. Hoping I can pick up a few shares when it dips below $100 again. I own MO and RAI, so as attractive as PM is, I don’t want to overexpose myself to tobacco. I’ve recently been adding to my position in PG, since that’s around a 52-week-low. They’ve had some bad buzz lately with the tiny dividend hike and mixed earning results, but they’re a great long-run stock. All part of the natural ebb and flow.

    I’m also looking at PEP. I’ve had my eye on them for a while, waiting for the price to come down. But I like how you initiate positions in stocks in stages, and I think I’m going to follow your [wise] lead.

  60. Hi Jason,

    Great post, thank you for writing it! I have recently bought 3 of the 4 stocks in this post. I don’t have WFC at the moment but I’ll look at that bank for maybe the next investing idea. I’d also love to own V at some point but I’m a little hesitant with the current valuation. What do you think about V at the moment? SBUX is another great company that was on your watchlist that I’d love to own. Do you think you’ll still own KMI in say 15 years? I have no idea what the natural gas/oil demand will be looking over a long time. Looking forward to your next articles, Jason you are the best!

  61. If nothing else, this makes me want to add more KMI to my portfolio. I’m already looking to add more XOM, CVX, and NOV at these depressed prices, but I only will only have the capital for three (many months from now). One of them will have to go.

    Great article! Already have all of these in my portfolio.

    Sincerely,
    ARB–Angry Retail Banker

  62. Undoubtedly , Hero Motors ! Its the largest 2 wheeler manufacturer in India.
    If you had bought the stock in late 90s it would have cost you 30 INR.Now it is closer to 3000 , almost 100 times up in less than 20 years.Moreover you would have received a cumulative dividend of 1200 INR till date for every share purchased at 30 INR……….Magic ????

  63. TDD,

    Yeah, JNJ is really quite unique in terms of its size, breadth, and geographical footprint. It’s just really one of my favorite stocks, if not my all-time favorite. Looking forward to being a shareholder for many more decades. 🙂

    Cheers!

  64. I don’t really agree, the more solid a company is, the more weight must have in a portfolio.
    Even WB has 1/4 of his portfolio in a single company, 1/2 in three or 2/3 in five companies!

    I think you could have 10 solid dividend companies (JNJ, KMI, etc) in 80% of a portfolio and 20% in another 10 low-yield-strong-growing dividend companies (DIS, V, etc). That shuld be enough to build a very-solid-dividend portfolio.

  65. Regan,

    Thanks! I do my best to pay attention to feedback and put out great, inspirational, and educational content. I put this together pretty quickly last night, but I think it came out well. If I were starting over right now, these four stocks would be absolutely getting my capital. Of course, I’d be buying up a lot of the stuff I’ve already been buying as well, like OHI, UNP, and the like. But these are great stocks to build a foundation upon.

    First world problems are the best problems to have. I suffer the same fate – never enough capital to go around. But that just makes us really think about our choices when it comes to capital deployment and probably makes us better investors for it.

    Best regards!

  66. Hi Jason,
    Do you think about weighting your positions in terms of the dividend income they produce, not the stock prices? You may one day find you have $10k positions in many companies, but those positions have very different dividend incomes.
    Thanks!

  67. Brian,

    That’d be really interesting, but it’d also be really tough. And that’s because, like you mention, I think a portfolio for someone in their 60s or 70s might look different when compared to a portfolio for someone in their 20s. I think I’d be a lot more interested in yield at that age, which means I might be forgoing stocks like V, DIS, and the like. And I’d probably tilt more toward telecoms, utilities, and REITs. So it’d just be tough to come up with that.

    My favorite 12 are already out there in the world, and you can see that just be looking at the portfolio and seeing where most of my money is. I think there’s a lot more value in seeing where people are actually investing rather than what they’re paying lip service to.

    But I’ll take that suggestion under advisement. If I can come up with some kind of list that I think would appease everyone (a difficult task), I’d be happy to publish it in hopes that it provides a lot of value. 🙂

    Thanks for dropping by. Have a great weekend!

    Best wishes.

  68. wtd7576,

    OKE is more sensitive to commodity prices, as you can see the difference in recent reporting results by checking out their financial statements. I think there’s a strong possibility that ONEOK will merge into one entity, as it then eliminates the IDR and creates a streamlined operation.

    Kinder Morgan already did this:

    https://www.dividendmantra.com/2014/08/kinder-morgan-merging-all-partnerships-into-single-company/

    Hope that helps. 🙂

    Cheers.

  69. madeline,

    Absolutely. I’m happy to help. 🙂

    Glad you found the blog. And I’m also glad you find value here. I do my best to share, inspire, motivate, educate, and also learn.

    There are definitely a lot of stocks out there in the dividend growth space, just like there are a ton of stocks in the broader universe of publicly traded companies. Dividend growth stocks is just a subset of that broader universe, so you’re going to see pretty much all the sectors and all the industries represented. You’re just filtering it down into those that are so routinely increasingly profitable that they send out bigger and bigger dividend checks to shareholders.

    Best of luck as you build out your portfolio! 🙂

    Take care.

  70. John,

    I’m with you there. I’ve been stocking up in a similar way. I’ve got a little more room for the REITs, but I suspect I’ll be done with them for a while after June. And then, hopefully, we get more opportunities down the road with any changes in rates. 🙂

    Have a great weekend!

    Cheers.

  71. Brazo,

    Absolutely. Happy to help. Hope it provided a lot of value and information for you. There are a couple of linked articles in there that add more depth as well. The WFC article is especially informational. 🙂

    Best regards.

  72. Andrew,

    Yeah, HCP has a great dividend growth record. A little leery there with the tenant issues, and so I’m looking at OHI which provides a similar valuation and yield without the potential lingering issues. But HCP has done well for shareholders over a long period of time.

    Have a great weekend!

    Best wishes.

  73. Phil,

    I hear you there on tobacco. I’m also admittedly a little heavy there. But I don’t anticipate buying any more tobacco any time soon, or perhaps ever. So that’ll naturally come down a bit.

    PEP’s a great company. One of my favorites. But, yeah, the valuation doesn’t seem particularly compelling right now. It’s an expensive market right now, and so that means there are some expensive stocks out there. The consumer space seems to be where you see a lot of them right now.

    Thanks for dropping by. Have a great weekend!

    Best regards.

  74. Sampo,

    Thanks! I’m happy to help. So glad it provided some value for you. 🙂

    I honestly don’t think V is a bad bet here at 30 times earnings. It’s one of the very few stocks that I think warrants that kind of valuation. You’ve got some consumer stocks right now out there trading at 20-25 times earnings and growing much slower than V, with much less growth potential in the future. V isn’t cheap, but I don’t think the valuation is crazy. SBUX is in a similar boat there. I wouldn’t want to go bonkers and load up on either one right now, but I don’t think one would be terribly unhappy with their results over the next 10 years if they buy either stock today.

    I’ve kind of mentioned before that I’m mixed on O&G over the very long term. I think we’re okay there for at least the next decade, but I think, at some point, other energy sources are going to become more attractive and less expensive. You’re seeing this with solar already. I don’t have any qualms with any of the O&G stuff over the next decade or so, but I think the picture is a bit cloudier when looking out further than that. The global companies should do fine for even longer because it’s unlikely a lot of economies out there will be very worried about alternative energy when they’re just trying to make sure people have energy at all. Coal is still quite popular in China and they’re a huge economy. So there’s some catching up there, and we here in the US aren’t even that far along. But, again, I think it’s just something to be mindful of. The overall climate there is tilting away from some of these legacy energy types. But rhetoric and reality aren’t really anywhere close right now.

    The reason I’m even less interested in utilities is because they’re a bit more “on the ground level” when it comes to any changes. I think they’re more immediately sensitive and they’re local. There’s no ability to spread out the risk across a wide swath of people.

    Have a great weekend!

    Best wishes.

  75. ARB,

    Always more stocks than capital. A great problem to have, but still a problem. 🙂

    Best of luck deciding which way to go. I’ve also got more ideas than capital this coming month. It’ll be fun to filter it down a bit and see how things go.

    Cheers!

  76. harsh,

    That’s fantastic. I’ve never heard of Hero Motors. Sounds like they’ve done incredibly well, though.

    Our domestic auto manufacturers don’t have such incredible records, however, so I’ve been loath to invest in that industry. But it’s great to have that kind of opportunity over there in your market. Capitalism is alive and well in India. 🙂

    Cheers.

  77. Nuno,

    Yeah, I think it depends on how you view risk and how you want to manage it, your individual goals, your capital, and other available opportunities. I’ve already discussed why I invest in many companies ad nauseam, so I’m not going to beat a dead horse. But I like to keep in mind that Peter Lynch had 1,000 stocks in the Magellan Fund at one point and he did pretty well. 🙂

    Take care.

  78. James,

    Absolutely. I do keep that in mind, though the bulk of my portfolio is invested in stocks where the yield is between 3% and 4%, so I think the market value weight is an approximate proxy there. The major difference will be with the stocks on far sides of the yield spectrum, like REITs and, say, a Visa. But I ultimately make capital allocation decisions based on my overall judgement of valuation and quality first, assuming I have room at all for a stock. The rest kind of falls in place where I start considering diversification, income needs, etc. If you’re diversifying yourself appropriately across individual companies and individual sectors without going too crazy in any one stock, the dividend income will likely not be too out of whack. And some stocks, like, again, Visa, are less about current income and more about growth. So that’s really up to each individual investor in terms of where they want to allocate capital and what kind of income they think they need.

    Best wishes!

  79. Hi Jason,

    Thanks for the ideas once again.
    Even as a beginner I own some of these. This shows me that I’m at the right track, building the foundation of my portfolio.

    KMI surprised me a little bit. If you’d mention an energy stock, I’d expected XOM to be the winner.
    However, taking a closer look learned me that both yield an growth are a lot more attractive at KMI.
    XOM on the other hand is an Aristocrat, while KMI is not.. and XOM is trading at a fair price at the moment.

    Thanks again for your thoughts and have a nice day.

    DfS

  80. DFS,

    Definitely seems like you’re on the right track if you can claim that you own a slice of some of the best businesses in the world. 🙂

    XOM is a great pick as well, though it’s much more sensitive to changes in commodity pricing. KMI provides a better yield with better dividend growth as well, so I think that offers a more compelling opportunity. Hard to compare the long-term track records because KMI was brought public once more in 2011, but it’s been the far superior investment since then.

    Have a great weekend!

    Best regards.

  81. I was wondering do you invest in any funds? (ex. blue chip growth) Why or why not?

  82. Well three out of four (JNJ, PM, WFC) are in my portfolio as I’m sure are in many other dividend growth portfolios as well. I just wrote about my June stock considerations with JNJ being one of my choices behind my usual Canadian banks of course. As you know these are our first world problems that we have which always kind of puts things into perspective. Thanks for compiling this list. It’s always nice to get into the head of other dividend investors. Have a great weekend.

  83. Hi DM,

    Nice list of stocks, I can see why you would be all over it.I’m looking into J&J but I haven’t pulled the trigger on it yet since I’m gobbling up some oil stocks. Currently I won’t add to my position in Ageas, since its current weight is to high.

    Have good weekend.

    Cheers,
    G

  84. Great article really means a lot to someone like me just starting down this road. Another one I’ve been looking at is KO

  85. DH,

    Definitely. These are great stocks from which to build a foundation upon, which is kind of what I’ve already done. It’s a shame that I then don’t get a chance to really write about them much anymore after that. Buying and holding stocks is wonderful in the fact that you can be quite inattentive, but it also lends itself to not really paying much attention and writing about these stocks much anymore. So I’m happy to respond to feedback and bring these names up for those that are in a different spot in terms of their portfolio allocation. 🙂

    Have a great weekend!

    Cheers.

  86. dzogen,

    I’m sorry, but I don’t follow that stock. Looks like they deal in billing or something? Not something that’s on my radar.

    Cheers!

  87. DD,

    Great to be a fellow shareholder. I suspect we’ll be pretty happy for the next few decades or so, on the whole. 🙂

    Thanks for dropping by!

    Best wishes.

  88. Geblin,

    It’s a wonderful spot to be in when you’ve invested so much in a high-quality company that it just falls off the radar. That’s a really great problem to have. 🙂

    You have a great weekend as well!

    Best regards.

  89. Tyler,

    So glad about that. You’re exactly the type of reader/investor this article was meant for. 🙂

    KO is a great company. Truly one of the best. I didn’t list it due to valuation and the fact that I may end up buying more at some point down the road, but an excellent business at the right price.

    Have fun building up the portfolio. One of the great pleasures in life, in my opinion.

    Take care!

  90. Great companies. I own JNJ and PM. I would like to add more JNJ but more cheaper…around 90$

    Cheers from Spain.

  91. I’ve already had a “huge” position in WFC, but I did pick up on PG, KMI for consumer staple, kind of want to smooth things out. the Grexit and interest rate increase will cause more turbulance … I’m looking to add more shares if should there be a bigger dip.

  92. It really is. Isn’t it one of the few AAA credit rated company’s left (I may be wrong)? Certainly understand why it is!

    I may join you as a shareholder sometime in the future. We will see!

  93. Javier,

    I certainly hope we see JNJ below $90. That would offer a lot of investors a pretty great opportunity; it’d also give JNJ an opportunity to buy back some stock at an advantageous value. 🙂

    Thanks for dropping by from Spain!

    Cheers.

  94. Vivianne,

    Rising rates could provide a nice tailwind for WFC and other stocks like it, though I don’t really worry about macroeconomics. They should do well over a long period of time either way, but that could certainly speed things along. 🙂

    Have a great weekend!

    Best regards.

  95. dzogen,

    No, that’s why I included the FV estimates from some of the analysts out there for comparison. If I thought they were overvalued, I wouldn’t have listed them.

    Valuing a company is part art and part science, and somewhat subjective. So it’s up to you to do your own due diligence and come to your own conclusions, but I think all of them are pretty solid opportunities right now. Especially in a market that’s arguably overvalued.

    Cheers!

  96. Thank you for your opinion. I feel like these are great companies but somewhat overvalued. As interest rates start to rise I feel like we will be able to get these companies on sale given the popularity of dividend investing in the ZIRP environment. As you say, it is tough to know when it is coming, but the day of reckoning is coming IMHO. Accumulating cash and really cheap div stocks in meantime….

  97. I have 3 of the 4 companies you discussed, PM being the only one I don’t. WFC is one of my favorite companies in the world, and as such is one of my largest holdings. I consider it one of the cornerstones of my portfolio, and I like adding to it any chance I get.

  98. BCS,

    You and Buffett would get along swimmingly. 🙂

    I hear you, though. Great, great company. Rising rates could be a really nice long-term tailwind as well. Wish I would have picked up another 30 or so shares back in the $30s. But I’m pretty happy with how it’s turned out thus far. Definitely a cornerstone of my portfolio as well.

    Have a great weekend!

    Best wishes.

  99. An interesting read there Jason! I own three of those you mention, and I’m keen on adding to them.
    It’s good to read that someone, who’s opinion I respect, singing the praises of stocks I own…
    I’ll have to look into WFC.
    Are you still keen on NOV or are you leaving energy alone for a while? It’s a stock I still wish to accumulate..
    All the best, Nick

  100. Dear Jason,

    Thank you for this interesting article!

    As I slowly try to build my own dividend portfolio, I now focus on shares with a high hield.
    PM and KMI are one of those companies with high yields.

    On my radar with high yields are also O, WPC, OKE and BNS.
    Further I keep an eye on AFL, BAX, MSFT, IBM and JNJ.
    As you said: so many stocks, so little capital. 🙂

    May I please ask you to keep on writing regularly articles with the subject “Stocks That Aren’t On My Radar… But Perhaps Should Be On Yours”?
    That would be great to see if you still see value in stocks you already own enough from.

    Have a great weekend!

    Best wishes,

    Carpe dividendem

  101. One that I really want is MMM but can’t quite justify the price. Dividend growth has been great, lately, but doesn’t look like it always was. However, the company is dynamite.

    What do you think about GSK? I think there is a dividend cut in there around 2012, but so far price looks appealing and yield high. Could mean a cut or poor growth though. Any thoughts?

  102. Hello Jason, again a thought provoking entry! Great!

    For any newcomer that´s more than one valuable advice here … for free … !
    So …. “hey newcomer: do consider buying DM´s book, it´s a fantastic read!”

    Anyway, I might add here my “pillars” of financial freedom (my name for the portfolio: “CashFlowMachine” … inspired by your blog entry, I do hope that´s ok?!)

    next to the most ususal suspect JNJ (weight 9,8%) ….

    MMM (9,5%)
    MO (9,3%)
    ….
    CL (8,2%)
    KO (8%)
    PG (7,5%)

    There, I will not add anymore for the forseeable future!

    All the other positions are situated around those pillars, which offer … reliable dividend cash flow, anyway what you t(h)row (harmless wordplay 😉 at them, but the smaller positions are, according to David Fish´s list, Champions or Challengers (ADM, EMR, XOM, BBL, WPC, O, OHI, T, RTN, GIS, TROW), also!

    I do sleep well at night with that CashFlowMachine working!

    … SWAN would ne a nice name as well?!

    (sold AAPL …) (couldn´t sleep well with it …. …)

    I do hope for your next inspirations!

    All the BEST
    Thorsten

  103. Nick,

    Hope you found some value in the post. These are definitely great stocks upon which to build a larger portfolio, with all of them trading at pretty solid values.

    I’m personally overexposed to the Energy sector, so I’m not real interested in adding anything there right now. Again, a situation where I was fortunate to load up over the years. NOV is one of those stocks that doesn’t have a real lengthy dividend growth record, so I’d be careful about building up with it. Buying NOV when your portfolio is nearing $200k and buying NOV when you’re just starting are two different scenarios. In addition, the book-to-bill is obviously not real strong right now. But that’s why they have that backlog. I think NOV offers a ton of value right now, but I see it as carrying more risk than a lot of other stocks I typically buy/recommend. So I’d just think about how heavy you invest there, if you do.

    Best regards.

  104. CD,

    Definitely. I absolutely plan on revisiting this idea once a year. I’m confident there will be more/different stocks next year that I’m all loaded up on, but that offer enough value/quality for those maybe just starting out or in a much different place in terms of portfolio construction. I think it’ll make a really nice new series of articles that should provide a lot of value. New investors are coming around every day, so this’ll be a great subject to bring up annually.

    You have a great weekend as well!

    Best regards.

  105. Hey Jason,

    Are you suggesting that earlier in your investing career you should build up your core pillars and as your portfolio and cores get maxed out runwith riskier equities like NOV? I would be interested to hear about the 10-20 core pillars that young investors should look to add and if those pillars are overvalued but an undervalued equity is available, do you sit on the cash and wait or make the play? I love hearing other’s thoughts.

    Kyle

  106. Stephen,

    MMM is a great company. One I really regret passing up on years ago. But you’re right in that the dividend growth wasn’t always great. I remember looking at the stock back in 2011 or 2012 and the long-term dividend growth rate was much lower, before the last couple dividend raises (which were huge). In addition, it was trading for a fairly high valuation back then, so it just didn’t really fit for me. But it’s just one of those things. Can’t win/buy them all. Only so much capital to go around.

    I’ve looked at GSK here and there. Just haven’t seen a lot to like there. Little/no growth, deteriorating fundamentals, and a dividend that will unlikely grow much if at all over the foreseeable future. They’re guiding for EPS to grow at a compound annual rate in the low-to-mid-single digits over the next five years. I guess you’d have to decide whether that’s good enough or not. Could be an okay play as long as the dividend isn’t cut. And I do like the recent deal with NVS.

    Best wishes!

  107. Mark,

    I’ve never really used it before. Seems okay. Just poked around for a minute. Not sure if there’s a lot of information there that I’m not finding elsewhere, though.

    Cheers!

  108. Thorsten,

    Ha! Thanks for the book plug. 🙂

    Those are great stocks as well. I would feel very comfortable with owning/buying all five as core positions (at the right prices). I don’t have MMM or CL yet, but I do hope to rectify that at some point. I can see why you’re not comfortable buying any more shares in any of them, though, with those weightings. I don’t think I’d be real comfortable with 10% of my portfolio in any one stock, even one that appeared high quality. Just don’t know what’s going to happen in 10, 20, or 30 years. But many investors feel just fine with more concentrated portfolios. Different strokes for different folks. As long as you’re SWAN.

    Thanks for dropping by. Have a great weekend!

    Best wishes.

  109. Kyle,

    All I’m saying is that I think all four of these stocks offer compelling combinations of quality/growth/value right now. So if my portfolio were, say, half or less its current size, these would be four stocks I’d very likely be buying. And that’s why I bought them all so aggressively back in the day that I maxed out on them.

    Risk is something that each person perceives differently. And risk tolerances are also unique to each individual. So how comfortable you might feel owning certain stocks, regardless of your overall portfolio construction/risk profile, is really up to you. But I’ve felt comfortable branching out a bit as my portfolio has grown. Sometimes that risk hasn’t turned out well, like with ARCP (though, an accounting fraud can’t be predicted). And sometimes it turns out well, like with AMNF thus far. And my idea of “core pillars” might not be the same as other investors. I wouldn’t feel comfortable with more than 5% of my portfolio in any name, regardless of perceived quality, value, and risk. That’s just me. Others, like Thorsten up there, are okay with almost 10%. Just an individual call.

    Hope that helps!

    Cheers.

  110. Captain,

    I’m not sure, to be honest. Their service is free with Scottrade and TradeKing, so that’s where I get the reports from.

    Cheers!

  111. If JNJ hadn’t been on top of that list, you would’ve gotten an earful from me! 🙂

    Minus the tobacco stocks (which I don’t buy for personal reasons), that looks like a fantastic list of companies to own. I’ve purchased everything but WFC at this point, but I’m hoping to add some in the near future.

  112. Ohhh thanks for the reminder, I checked my broker and they have reports there along with several others. My broker is usually the last place I think to go for information.

  113. I like Brookfield Renewable Energy Partners (BEP) here if you’re interested in a geographically diversified renewable energy play. Payouts are good and will only get better.

  114. Seraph,

    Tough not to have JNJ at the top of the list. Not just one of my favorite all-time investments, but it’s also my largest. 🙂

    WFC seems like a solid bet here. They’re unrivaled in a lot of ways. And having Berkshire as the largest shareholder isn’t a bad way to go.

    Thanks for dropping by!

    Best regards.

  115. Steve,

    Seems like a good way to play renewable energy. I’ve never looked into it much, though. I concluded a long time ago that I wasn’t interested in owning MLPs due to the tax complexities.

    Thanks for the suggestion. Best of luck with it! 🙂

    Cheers.

  116. Thanks for another fantastic post. I really appreciate your writing and inspiration to the average folks.

    It is not actually related to this post and I may have missed this topic, but I have a question for you. I totally get achieving financial freedom by dividends and frugal lifestyle, and I myself try to do the same. One thing that bothers me, though, is about healthcare cost later in life. As you probably know healthcare cost is skyrocketing, I don’t think it will be easy to cover those expenses with only this strategy when you are old and need a long term care (even now long term care cost is extremely expensive, like 8000 per month). Some financial advisors are talking about retirement fund about 2-3 million because of this matter.

    I understand that due to low income bracket you can get medicaid or something. However, as I work in healthcare field, I know very well you can get taken advantage of by rogue medicaid doctors or system (they want government money, and patients care is not their priority). It can be very terrible when you are sick and vulnerable. So I would definitely want to have my own fund source for healthcare, at least part of it.

    It is depressing to think about possibility of long term illness later in life and its care cost, but everyone will get old and sick eventually. I certainly hope myself healthy and quick death at the end, but only can hope:). I am just wondering if you have any thoughts on this.

  117. SK,

    I did my best to address that here:

    https://www.dividendmantra.com/2014/04/three-reasons-im-not-worried-about-healthcare-costs-in-early-retirement/

    One doesn’t know the future, but I think those achieving financial independence quite early in life are far better equipped for any medical problems than just about everyone else out there. The $500k I should have at 40 will grow into $1.7 million by the time I’m 65 at just a 5% return (factoring in the dividends I’ll be taking as income). Lower stress, a greater ability to take care of your health, more overall wealth, and the flexibility to seek cheaper care abroad all put one in a great position (relative to just about everyone else) to take on challenges as they come.

    Best regards!

  118. Well I dont know but uhm.. In January u purchased NOV for about 61$ with their top of the line balance sheet. Right now nearing a 52 weeks low.. now at $49.19 with a yield at 3.74 What about that? I think its a nice entry for those wanting to go a bit on energy.

    Berkshire cut its stake in oil/gas equipment maker National Oilwell (NYSE:NOV) to 2M shares from 5.3M at the end of Q4 thats only 1 thing im worried about.

  119. Jason,
    I have not written here for a long time. But I read here almost every day. Like me you are living frugal. I think like me you like minamalism too. True to the motto: Less is more. To many things distract.
    You wrote you think you will have about 70 different positions in your portfolio by the time you have reached your target.
    I have many positions in my portfolio too.
    Are 70 different stocks compatible with minimalism?
    Shouldn’t we concentrate to the best one, two or maybe three shares of each sector we like? So that 50 different shares are absolutly enough. I think 50 is a nice number. The Nifty-Fifty.
    What is your opinion?

    Ahoj
    ZaVodou

  120. Hi Jason, I’m from the UK and long time reader of your blog, hugely inspirational and have got me focused on Dividend paying stocks!

    Just on subject of non-dividend paying companies, would be interested to hear what companies that don’t pay Dividends that if started, would quickly be in your watchlist.

    Am in all Dividend paying stocks with one exception, though would consider down the line maybe more exposure to great companies such as Berkshire, Chipotle etc (get in there early if you like).

    Keep up the great work
    Thanks

  121. Nice post, Jason

    I added to my JNJ position on Wednesday. It stands at two percent of my portfolio. At this price, I’d see no reason why it could not grow to 3-4 percent. I’m probably gonna leave a little room to add later (capped maybe at five percent).

    You highlighted a good point with Wells Fargo. I need to take a good look at it.

    Btw, have you taken a look at Hershey or Fastenal?

    I’ve done some preliminary work on the companies. I may nibble a bit of HSY falls below 87-88 bucks. Fastenal doesn’t (yet) peak my interest. If it falls below 40, I may have to do some additional work on the company.
    Both have attractive returns on capital and some room to grow…

    So many good companies, limited capital. Love these first world problems 🙂
    Cheers

    Jarmo

  122. I avoid “sin” stocks but I guess banks could be considered that by some people with all the money they make! 🙂

    WFC could likely take off in the coming years.

  123. Dividend Mantra,
    Thanks for the post! I plan on opening up positions in JNJ, PM and WFC at some point. I currently own KMI and it has been great with dividend increases in the last couple of quarters. Hopefully, it will continue to increase as Mr. Kinder promised through 2020. Keep in touch friend.
    LOMD

  124. Good stuff, DM. I’m already maxed out on JNJ with a hair more than 10k invested there. But I plan on selling about 43% of my MCD position (after the dividend comes in during June) to get some PM and PEP (I already have MO).

    I’ve been slowly building up my stake in KMI. I’ll have 70 shares there by the end of the year and will look to add more in 2016. Gonna swap 33 of my 103 CVX shares for 40 XOM. I still like CVX long term but I’m too heavy there and would like some exposure to the other giant in the industry. Their dividend freeze didn’t help, either.

    I’ll look into Wells Fargo. Right now the only bank I have is BNS.

  125. William,

    Well, there’s a big difference buying NOV when you’re developing a somewhat mature portfolio compared to just starting out. Just my take on it. And that’s why I’ve diversified the portfolio out as it’s grown. But those interested in NOV can certainly read about it since I did the analysis and bought the stock not too long ago. This was more about coming back to names I haven’t really discussed too much in quite some time – those I find myself unlikely to buy more of at any point in the foreseeable future, but that are still compelling investment cases now based on valuation, growth prospects, and overall quality. WFC is the one I might make a little more room for, but even that isn’t all that likely.

    Cheers!

  126. ZaVodou,

    That’s an interesting question. Honestly, it’s not something I’ve ever really thought about before.

    When I think about minimalism, I think about it in its existential form… stuff (material possessions) in the physical space that surrounds me. A portfolio isn’t stuff or clutter. It’s just more or less numbers and letters when you log into your accounts. I think that would be akin to saying having $1 million in your bank account is less minimalistic than having only $1,000 in your bank account. Besides, it’s not really any more time consuming to manage 50+ positions than it was to manage 30 positions, in my personal experience.

    Minimalism, in my view, is a tool designed to achieve a type of freedom. And having a larger portfolio gives me freedom from excess worry. So it all works together.

    Just my opinion on it. 🙂

    Thanks for dropping by!

    Best wishes.

  127. dividendsandtea,

    Thanks so much for reading and supporting the blog. Much appreciated. You guys make the blog possible. 🙂

    As far as stocks that don’t pay dividends, I don’t really consider any of them at all. To open myself up to looking at/considering/wishing for stocks that don’t pay dividends would just be a waste of time, in my view. I’d then have to start looking at fundamentals, valuations, and competitive advantages of a whole new universe of stocks, and that would take away from those I already do that with… those stocks that I’ll actually be able to buy, and that positively affect my goals, progress, and freedom. I’ll miss out on some winners/great companies by avoiding the companies that don’t pay dividends, but I’ll also avoid plenty of losers/poor companies.

    That said, Chipotle and Berkshire are both great companies. I doubt we’ll see a dividend from Berkshire anytime soon, but it would be interesting to see what that would look like!

    Cheers.

  128. Jarmo,

    I took a quick look at FAST a few months ago:

    http://dailytradealert.com/2015/01/23/these-27-dividend-growth-stocks-go-ex-dividend-next-week-2/

    Really solid growth, and I love the business model. The dividend frequently bumps up against FCF, however. So that’s just something to watch.

    Hershey is a great company. Frequently expensive, so it’s tough to really get the kind of price you might want there. Another reader was asking about HSY and I noted the somewhat poor returns over the last 10 years, which I think is probably related to the valuation. That valuation has come down a bit over the last month or so, but it still doesn’t appear very cheap here.

    I hear you on first world problems. The best kind to have! 🙂

    Best wishes.

  129. Mark,

    WFC is primed to do well with rising rates, when they finally come. But they’re doing well even with low rates, which speaks to the quality. Their market share across the lending space, cross-selling ability, and huge access to low-cost capital offers a lot to like. Wish I would have picked up another 30 shares in the $30s.

    Thanks for dropping by!

    Best regards.

  130. LOMD,

    Gotta love Kinder Morgan. Not too often you get dividend growth guidance that stretches out five years. And certainly not double-digit guidance that comes on top of a yield that’s more than twice that of the broader market. Enjoy that dividend income! 🙂

    Cheers.

  131. Mike,

    Seems like your portfolio is taking on greater diversification. Nice!

    I personally prefer to gain diversification by buying up other stocks rather than rebalancing via selling, but I’m sure you’ve done your due diligence there.

    BNS is a really solid bank as well. I think the Canadian banks in general have greater challenges in front of them over the foreseeable future compared to some of the large US banks, but I’m a very happy BNS shareholder. The recent quarter was pretty solid.

    Thanks for stopping by. Keep up the great work!

    Take care.

  132. A very nice selection of great companies, Jason. I own 3/4 of them and plan to add more in the future when I have cash available. Only KMI is not in my portfolio. It’s on my watch list though. But as you I’m already heavy in energy. And also I’m with you when you say the KMI is difficult to valuate. But looking at the dividend is pays, you have to love KMI.
    Cheers.

  133. I have no energy currently on my “starting out” portfolio so I may pick up some KMI this week.

  134. They aren’t that complicated unless you have a large amount of income from them. There are K1s to deal with but most tax software makes that easy. My accountant just deals with that for me anyway as most of my income comes in on a K1 anyway. There is possibly the issue of having to file non-resident returns in states where the MLP generates income but again, not an issue unless you generate a large amount of income from them.

    The tax deferment aspect of MLP distributions also has advantages for someone with an expected holding period of “forever” as a decent percentage of distributions are often classified as return of capital which is tax free until you sell the shares.

  135. Jos,

    I hear you there. KMI is a big reason I’m so heavy on energy in the first place. But it’s tough to pass up that kind of yield in combination with such strong dividend growth, especially when that growth is being guided in the manner it is. And one has a lot of faith there since Richard Kinder has the most to gain/lose.

    Happy shopping this coming month! 🙂

    Best regards.

  136. Steve,

    Yeah, I’ve heard it both ways. I’ve heard some people say the K1s aren’t that bad. Others (who apparently do their own taxes) have bemoaned them. I’ve looked into it and decided that it’s just not for me. I like simplifying things when and where possible. And the GPs (when applicable) usually offer more compelling total returns and dividend growth anyhow.

    Thanks for sharing!

    Best regards.

  137. I just purchased some good ol’ JNJ last week, glad to see it on this list! 4 excellent companies worthy of any dividend investor’s portfolio for sure.

    Cheers!

  138. Investing in companies with strong fundamentals and relying on company growth and dividend earnings is usually a good idea. Only thing that keeps me from investing myself more strongly in such (and these) companies would be the amount of capital I will need to put in to make it all feasible. My point here is that one really does need a 5 digit sum to hand (at the very least) in order for this kind of investment to make sense.

    In cases of less-than-ideal budget to hand, I’ve been wondering whether JNJ (for example) would be a better path to take compared to just keeping my money deposited in the back for (say) 5-10% annual return. Accounting for inflation as well, the actual return (purchasing power) would not have increased considerably should I have remained locked up with the bank deposit option.

    To this day, I still consider investing in dividend issuing strong fundamentals kind of company to be superior to just keeping money in the bank. What do you think?

  139. Jason, bang up job as always. Enjoy reading your work. We have J&J, PM and WFC in our portfolio. Currently J&J is about 25% of our portfolio but that’s a function of us being at the early stage of portfolio growth. On KMI we were skeptical because of our fear for the safety of the dividend. The payout is currently hovering above 200%, roughly 40% higher than KMI’s historical average. The LP consolidation was a good move but then in an era of lower oil prices we just couldn’t convince ourselves that the dividend was safe, in spite of it being an obviously well run company. We’ll keep an eye on it and also an eye on your blog for the consistent quality you provide.

  140. ZTZ,

    How can you not love the largest and most diversified healthcare company in the world? 🙂

    Looking forward to collecting growing dividend income alongside you for many years to come!

    Cheers.

  141. ridah,

    Glad to be a fellow shareholder with you in some of the best companies around. 🙂

    Looking at KMI’s payout ratio isn’t really accurate because of the MLP legacy. Like a REIT, it’s difficult/inaccurate to use traditional profit metrics like EPS. For REITs you use FFO/AFFO. For MLPs you use DCF, which is distributable cash flow to determine the dividend’s security.

    But KMI might not be for you. And there’s nothing wrong with that. I would view it as being riskier than some energy plays due to the leverage.

    Thanks for dropping by!

    Best regards.

  142. Jason, I think we misunderstood each other slightly. I wasn’t making a commentary on the valuation of the company’s stock; I’m agnostic on that point and never referenced the company’s EPS. We own a few REITs in our portfolio and on MLP so very much familiar with the differing valuation methodologies.

    However, I think payout ratio, even with MLPs and REITs, is a valid measure of determining the safety of a company’s dividend. My only issue was that with the patout ratio as it is, and it being 40% higher than its historical payout that a new investor who doesn’t already own the stock, unlike you, may want to poke around a bit and kick the tires on the safety of the dividend if that investor is investing for income. With respect to the MLP legacy, MMP(which we own) and SEP both have payouts under 85% while KMI has a ratio double that.

    Hope this clears up my point slightly. Again, thanks for the consistent quality.

  143. ridah1o1,

    “However, I think payout ratio, even with MLPs and REITs, is a valid measure of determining the safety of a company’s dividend.”

    I disagree and it seems so do the professionals that analyze these types of stocks. Using EPS as a proxy for profitability when it isn’t a very good measure of such would then confer inaccuracy to the payout ratio. I’ve seen EPS for even high-quality REITs to oscillate a bit even while FFO is steadily moving upward. To be honest, even using EPS for the payout ratio isn’t completely accurate, as FCF is truly the most complete picture of actual cash for dividends.

    The problem with MLPs is that DCF is sometimes difficult to ascertain and there’s no industry standard for it (as far as I’m aware). REITs, on the other hand, have an industry standard, which makes it very easy to determine accurate profitability and hence an accurate payout ratio.

    I would only agree with you if you’re saying you’re not looking at EPS when looking at the payout ratio.

    Care to share the numbers for KMI’s DCF over the last five years compared to its current DCF and then the payout ratio of its dividend against that?

    Cheers!

  144. Hey Jason, thanks for your explanation. I’m not using the EPS when looking at the payout ratio. However, the company’s own release 4th quarter last year indicated that its metric for DCF in 2015 was based on crude oil at $70/barrel and every dollar below that would affect the distributable cash flow by $10 million. As of today that would mean that DCF is down over $100 million based on oil prices as of today; we still have 7 months to go so that may change for the better.

    That said, I think you are right that DCF over the last few years has been very impressive; just last year they paid out 60 cents 4th quarter last year up above 46 cents in the same period in 2013. That’s impressive growth no matter how you slice it. In the end, I think it’s a company that’s worth owning we are on the sidelines because of my concern of the dividend. But there’s no real right or wrong answer; if this was a science and if the professionals always got it right we would all be making a lot more now. As the French say, a chacun son gout. FYI, the KMI release I mentioned is here: http://www.kindermorgan.com/content/docs/4Q_2014_KMI_Earnings.pdf

  145. Love it. I’ve been buying up JNJ, KMI, PM, etc. and actually have no problem with them being overweight in my portfolio. As individual stock pickers, we have the option to do whatever we want with our portfolios, and energy, tobacco, consumer staples, and health care have a century of over-performance compared to things like utilities and materials. I personally don’t want to own 50+ companies, and will likely settle in the 25-30 range.

    My thought is, why restrict your best investments? If JNJ is the best place I can put money today (or CVX, XOM, RDS.A, etc…) why put money into the second best? There will be a time when JNJ / PM / CVX isn’t the best place to put money, and that’s when I’ll move down the list.

    When there’s blood in the street, buy real estate. When oil takes a dive, buy oil. Sure, you may not “keep up on paper” but I love to get things on sale even if it means taking on some extra sector risk. Who cares if XOM falls to $75 if you don’t plan on ever selling?

    If you look at some of the investment greats, they put most of their money into their best ideas, and that’s kind of how I do my portfolio – I’m going to be purposely over-weight energy, staples, and healthcare, with a smattering of everything else. Sure, you may have some painful times on paper, but for us long-term investors, it’s only on paper!

    Just my $.02, but I like this article template and would love it if you made this a monthly thing!

  146. riah1o1,

    I guess we’ll always remain a bit apart on this issue. You say you’re “not using EPS when looking at the payout ratio.” Yet your first statement contradicts this:

    “The payout is currently hovering above 200%, roughly 40% higher than KMI’s historical average.”

    That’s using EPS, my friend. The payout ratio using DCF (which is really what you should be looking at) isn’t 200%. And that was really my point all along.

    Cheers!

  147. JJ,

    “My thought is, why restrict your best investments? If JNJ is the best place I can put money today (or CVX, XOM, RDS.A, etc…) why put money into the second best?”

    Right. Well, that line of thought assumes that one can know the future. JNJ (or any other stock) might appear to be the best possible investment now, but it might turn out that that’s actually not the case when you look back on things five or ten years later. And that’s why I diversify. JNJ is really one of my favorite stocks, if not my favorite all-time stock. But in terms of total returns and overall dividend growth, I’ve done better elsewhere. I don’t have a crystal ball, so I diversify out across many high-quality stocks. And that’s what’s really wonderful about dividend growth investing. There is a universe of hundreds of such stocks, and many are really great businesses. So I don’t need to restrict myself to just a few great ideas when there are already so many.

    I definitely plan to revisit this subject on an annual basis. It would be too difficult to really discuss monthly because I don’t max out positions that often. But I suspect I’ll have another five or so stocks to list next year, depending on valuations.

    Thanks for dropping by!

    Best regards.

  148. Nice thing to go back to the foundation sometimes! These are good stocks to own for many investors. You know my position in PM though, but I still can see why investor buy it.

    Thank you for sharing this!

    Cheers,

    Mike

  149. Mike,

    Yeah, these make great stocks to start with. Each one of them is more or less dominant in their respective industry and I think the odds are really quite good that each one will pay growing dividends for many years to come. One would have a fairly diversified miniature portfolio after just buying these four stocks, so it’s a nice start for sure.

    Cheers!

  150. Totally agree on JNJ and WFC, but personally I would chose JP morgan for first financial invetment, but when comparing WFC and JPM are almost identical. Regarding PM, I would give it a big big no due to one single thing – negative equity. Company has more debts then asset are basically worthless. Their share repurchase and dividend payments are to aggressive. Its ok now when interests are basically zero, but when they will go up to 2-3% there will be problems for the company. And company can not pay more then it earns forever. Personally I prefer companies that grow not only dividends but also equity. PM decrease it ever single year. I think this is some sort of red flag for long term investors. Regarding KMI, I don’t have any opinion, but their financials looks very messed up (share number increase, paying more dividends than EPS. I would prefer more INT and WMT.

  151. Justas,

    I don’t think I’d agree that WFC and JPM are identical. First, JPM has had a lot of issues over the last few years that seem to stem from some type of lack of internal management. Fundamentally, they’re quite different. WFC has a much larger market share for domestic lending in almost every category, their deposit growth has been much stronger, and their cost of capital is much lower.

    You can actually check out some direct comparisons here:

    http://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/presentations/2015/barclays-conference.pdf

    PM’s balance sheet confuses those that aren’t familiar with balance sheets. Their debt/equity (negative book value) is heavily skewed by an unusually large amount of treasury stock. That’s a byproduct of the strong buybacks.

    As far as KMI goes, they still have that MLP legacy. You can’t really use EPS to measure profitability for an MLP. You would instead use DCF.

    Cheers!

  152. Hi Jason,

    I recently found your website, purchased your book and I love the articles you write. I’ve been involved with stocks for a while, but over the last year I’ve refocused on dividends instead of capital gains. I just prefer the predictability and security of this approach. Your articles have given me a lot of great ideas, but one stock I wanted to ask you about is AXP.

    I know the yield is a bit on the low side, but I’m very intrigued by their industry basically operating in an oligopoly, extremely high barriers to entry, Buffet is a big fan of theirs owning about 15% of the company, and I believe AXP has plenty of room to grow. Their international presence is pretty small and cash (especially internationally) is still used a lot giving them room to grow.

    I know AXP has had a tough year giving up the Costco and Jetblue cobranded cards, and they are hurt some by the strong dollar, but what do you think of this as an entry point for them?

  153. Peter,

    Thanks so much for the support. Really appreciate that. Hope you enjoyed the book and found a lot of value in it. 🙂

    As far as AXP goes, I suppose you have to ask yourself first how many payment companies you want in your portfolio. If it’s two or three, then I think AXP has a place there. If it’s just one, I’m not so sure.

    But I prefer V in this space. The valuation isn’t even close, but a lot of that is warranted. V’s grown much faster over the last five years and doesn’t face the same kind of risk that AXP does (the former just offers the network; the latter has banking risk). In addition, V’s dominance and cheaper interchange fees are attractive. Finally, V sports better fundamentals almost across the board.

    But AXP has probably dropped too much too fast this year, and the valuation is now much more compelling. The P/E ratio is now well below its five-year average, though the loss of some key accounts means the valuation should be lower. But if you’re going to own AXP, I think now’s a great time to pick it up. AXP is still a really fine company, even if we’re comparing it to a finer company in V.

    I’m still deciding how many payment companies I want in the portfolio. Right now, it’s just V. But if I decide to expand that a bit, then I probably see a place for AXP. All in all, however, I think V is just the superior company.

    Hope that helps!

    Best regards.

  154. Hi Jason, thank you for your site!
    With reference to KMI, checking morningstar.com site I see that company EPS is consistently lower than its dividend and I do not understand how any company can pay more dividend than its EPS ? There are many other companies with EPS lower than dividend. It is possible that I am missing something.
    Thanks again for your posts. I am also on my way to financial independence through dividend strategy.

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