You Can Pass Down These 'Heirlooms'
04/08/2013 10:30 am EST
There's a lot to like about solid companies with years of increasing dividends, says Martin Hutchinson of Money Morning.
Even though the Dow Jones Industrial Average has reached record highs, investing hasn't got any easier.
When the markets make a major move higher, investors always run the risk of buying at the top. It's called chasing momentum, and it can be damaging to your portfolio.
But the truth is, you don't have to chase the market. There is a safer—and in the long run, more lucrative approach.
The stocks to buy are what I call "heirloom stocks." These are stocks you buy, hold, and watch them grow—steady earners you can rely on to fund a growing prosperity in retirement, or leave to your grandchildren, knowing that the expenses of their lives will be safely covered.
Heirloom stocks are from a select group of 82 stocks listed on the NYSE or Nasdaq. Their key characteristic is that they have not only paid dividends for 20 years or more, but that they have increased their dividends in every single one of those years.
The longest of these has a history of dividend increases that extends back 59 years, to 1954. But all 82 of them have track records that go back to at least 1993. Surprisingly, there aren't a lot of borderline cases, either. Only two stocks have track records of between 20 and 29 years.
These are the stocks that should be an important base of any portfolio, especially one used for retirement purposes. Here are three heirloom stocks to add to your portfolio:
Procter and Gamble (PG), the consumer products company, has increased its dividend every year since 1954. It yields around 3% and its P/E is 17.5 times. The company's dividend has increased 820% since 1993, and its return on equity is 17.5%. As heirloom stocks go, PG is top quality.
Emerson Electric (EMR) provides electrical engineering products and services. It has increased its dividend every year since 1957. Its yield is 2.9% and its P/E is 20.4. The company's dividend has increased 460% since 1993, and its return on equity is 20.1%. Again, top quality, albeit a little expensive at the moment.
3M (MMM) has increased its dividend every year since 1959. It has a yield of 2.5% and a P/E of 16.4. It has enjoyed a less exciting 290% dividend increase since 1993, but the Consumer Price Index is up only 62% in that period. However, its return on equity is a stellar 26.6%. It may not be rapidly growing, but still makes for an excellent long-term investment.
All of these are stocks you can buy now—even in these high-flying markets. In a time and place in the not too distant future, you'll be glad you did.