Bert’s Five “Always Buy” Stocks

The last month has been a roller coaster ride in the stock market.  I love waking up in the morning and reading about the pre-markets and the developments that occurred overseas while I was asleep.   Every time I read and hope for a downturn so I can benefit as much as possible as a dividend investor, whether it is from initiating a new position, lowering my cost basis in a stock I already own, or receiving a few extra fractional shares from a DRIP.

A few weeks ago I woke up and there was a sudden decrease in the market. Sadly, I froze….I didn’t know how to allocate my idle cash and it turns out I missed a golden opportunity.  I learned a very important lesson from this experience. Going forward I am going to maintain a list of five stocks that I will always buy.  That way,  I will be able to react instantaneously the next time the market decides to suddenly drop.   After weeks of consideration, I have compiled the first installment of this list.  Did any of the stocks you currently own make the cut?  Let’s find out.

Buying Stocks

The Process

The first question on my mind was “where do I even start?”  Should I look exclusively at stocks I currently own?  Or should I search for new stocks?   Should I set a minimum yield?  You get the picture.  Here are the requirements I used for this list.  These requirements didn’t narrow my pool down to just five stocks.  Especially since there are a lot of companies that meet the criteria listed below; however, based on the list below, I know that my selection of five stocks will come from a strong pool of dividend growth stocks.  Here are the minimum requirements.

  • Company Has Increased Their Dividend for 20 Consecutive Years – Why are we dividend growth investors?  We are looking for a growing dividend income stream to propel ourselves towards financial freedom ASAP.   So for this listing, I want to focus on stocks that have a long-term history of increasing their dividend.   I stopped short of including only Dividend Aristocrats on this list.  I didn’t want to exclude the great companies that are on the cusp of achieving this prestigious title.   So for the purposes of this installment of my “Always Buy” stock list, I lowered this threshold to 20 years.
  • Company Has Either A Dividend Yield or Weighted Average Dividend Growth Rate Greater than My Current Portfolio–  This unofficial rule/goal of mine stemmed from my portfolio review at the end of 2014.  Lanny made a very compelling case for why we need to measure and monitor our portfolio’s weighted average dividend growth rate.   After reading his piece and measuring my portfolio’s rate as of 12/31/14, I pledged to only invest in stocks that will either increase my portfolio’s yield or DGR.  I don’t mind sacrificing growth rate for a higher yield.  Heck, AT&T is one of the largest holdings in my portfolio and the company has a dismal dividend growth rate.  But you know what?   T’s yield is well above my portfolio’s average yield.  Thus, any future investment will increase one of these two important metrics.   While increasing both metrics is preferred, I will only consider stocks that exceed either my 12/31/14 weighted average dividend growth rate of 7.54% or my 12/31/14 dividend yield of 3.97%.  **2019 Update:  I am lowering the dividend growth threshold to 6% due to the slowing dividend growth observed. And my portfolio’s dividend yield as of 3/31/19 is 3.20%.
  • Payout Ratio Below 60%– This metric is one of the three metrics of our stock screener for a reason. Some form of this metric is used by most dividend growth investors in the community.   We love dividends and focus solely on companies that pay a growing, sustainable dividend.   While we want as high of a dividend yield as possible, we would never want to invest in a company that is sacrificing the long-term safety of the company and dividend to reward shareholders in the short-term.   We believe a 60% payout of earnings is a healthy balance.  For more information about this metric, visit our stock screener page and this article Bert wrote explaining the metric in detail.
  • No Oil-Related Companies –  This may surprise some people and they may disagree.  Especially considering the oil industry has arguably been hit hard in recent years.  Plus, with dividend giants like Exxon Mobil, Chevron (which I purchased earlier in the year), Kinder Morgan, and Schlumberger I would be nuts not to invest in this industry.  Well, after taking a hard look at my portfolio, individual oil-related companies account for ~11% of my portfolio and  have heavy weights in the dividend focused mutual funds I own.   So for now, I am content on this sector and will use a downturn in the market to purchase a great company that will further diversify my portfolio.  **2019 Update:  This continues to remain true.  Since the article was published, I have added Exxon Mobil and Occidental Petroleum to my dividend portfolio.

The Five “Always Buy” Stocks

Now it is time for the fun part.  As I mentioned earlier, the process above identified a lot of great companies.  My list is as follows (Information updated as of May 2019):

  1. 3M Company (MMM) – 3 Yr DGR: 9.67%, Consecutive Annual Dividend Increases: 60 – I purchased shares of 3M years ago.  It has been one of my favorite holdings ever since.  This company sports an amazing brand portfolio and has rewarded shareholders greatly over the last decade.  Starting in 2019, the company faced a pullback based on litigation and slowing growth.  With that, the company still has a solid dividend payout ratio that is in line with our stock screener.
  2. Emerson Electric (EMR) – 3 Yr DGR: 1.04%, Consecutive Annual Dividend Increases: 62 – Similar to MMM,  I initiated a position in EMR in 2015 and would love to add more.  I fell in love with the company after I performed a stock analysis in 2015.  The company has been a dividend machine over the last half century.  Currently my position generates $142.17 in forward dividend income.    Don’t worry everyone, EMR still passes one of the criteria listed above.  This is even though the average dividend growth rate is lower than my portfolio’s weighted average rate.  **2019 Update:  EMR’s dividend growth continues to remain low.  I will consider replacing EMR in 2020 if their metrics do not start to improve.
  3. Johnson and Johnson (JNJ) – 3 Yr DGR: 6.27%, Consecutive Annual Dividend Increases: 56 –  Unlike EMR though, JNJ is one of our foundation stocks and rightfully so!  JNJ has been paying and consistently increasing their dividend  for a long time.  Further, it seems like every recent dividend increase is in the mid to high single digit range!  Johnson and Johnson sports an impressive brand portfolio as well.  This is always a huge bonus for me.  I love stocks with large brand portfolios found in everyone’s house.  Like MMM and EMR, I have a solid position in the company;  but man would I love to receive over $100 in dividend income annually for this company.   The next downturn may present too great of an opportunity to pass up!
  4. Pepsi (PEP) – 3 Yr DGR: 9.77%, Consecutive Annual Dividend Increases: 47 –  In 2014 I performed a stock analysis over the beverage giant and determined that the company was too expensive to purchase at the time. Years later though, the price fell and I had an opportunity to initiate the position.  Why did I consider Pepsi over Coke on this listing?  Even though PEP has a lower yield than KO,  I selected PEP instead due to the diversified product portfolio, and lower payout ratio.  **2019 Update:  PEP was added to my portfolio a few years ago when the price fell below $100 per share.
  5. Target (TGT)3 Yr DGR: 4.57%, Consecutive Annual Dividend Increases: 47 – This last spot was a tough one to fill and TGT barely edged out Caterpillar, which has made many appearances on our website over the last six months.  Here is what I said when I initially created this list in 2015:  “I chose TGT over CAT despite of the lower yield because TGT typically trades at a higher multiple, TGT would represent a new industry in my portfolio since I already own an industrial equipment company, TGT performed very well when we ran the company through our stock screener last year and TGT has been on a dividend growth tear over the last half-decade.  It is not that CAT is a bad company.  I just would prefer to use a sudden drop in prices to initiate a new position in a company that typically trades at a higher multiple.”  Since I wrote this in 2015, TGT has become a large position in my portfolio.  It is one that I will hold for a long time.  The company continues to evolve and battle Amazon and Walmart.   Even with CAT’s large dividend increase in 2019, I’m still happy TGT’s number 5 on my list.

What are your thoughts on my list?  Do you have a list of stocks that you are always willing to purchase?  Would you have passed on any of the companies I included?   Would you have selected Target or Caterpillar with the last spot?  Thanks everyone, I am looking forward to your comments!

-Bert

DISCLOSURE: I DO NOT RECOMMEND ANY DECISION TO THE READER or ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER I BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING
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29 thoughts on “Bert’s Five “Always Buy” Stocks

    • Thanks Ken! And that’s the fun part, right? In order for me to jump on one of the stocks, I wold need to see a nice drop in share price from where they have been trading recently. Over the last 3-6 months, I would say JNJ and EMR have fallen to the point where I would buy them immediately. Great stocks at that great of a discount are just hard to pass up. I can also make the same argument for MMM as well, as I finally saw the price fall enouhg (below $140) to the point where I pulled the trigger and added some shares. PEP and TGT aren’t quite at that level yet for me. However, if the price were to fall 5% or so, I would gladly scoop them up!

      Thanks for stopping by. Have a great weekend.

      Bert

  1. Great idea and something I need to look at as well for my portfolio. I own all your choices except for PEP. I love Mt Dew though so I should look into it more. I do love the diversity of PEP compared to KO. If I had to add anything to the list it would be something along the lines of PG or UL just based on the products they make and the track record. Thanks for sharing your list!

    • It is a great excercise and it was a blast putting it together. It was like shopping for the most expensive items that you are planning on buying when they come on sale/clearance at the end of the season. Our monthly watch lists focus on stocks that are currently trading at a value, so it was nice to dive into the more expensive stocks for a change and see what other options are out there.

      The fun part is that there are about 50 stocks that I could have had on this list. I would have added PG and heck, I might buy some soon if the price continues to fall. However, their payout ratio was a little too high for the purposes of this article. The list focused on stocks with a payout of 60% or less. But you know me, I love consumer stocks…so you can’t go wrong!

      Thanks for stopping by!

      Bert

    • M,

      Thank you very much. Hopefully the criteria allowed me to pull from the strongest pool of dividend machines haha It was really hard to ignore XOM on this list, but I felt that I could use a downturn to further diversify my portfolio and bridge out into new markets. Especially considering that I own so many different oil stocks. But who knows, as I continue to build my portfolio elsewhere my allocation in oil may reduce enough to the point where oil suddenly becomes attractive enough again!

      Bert

  2. Thanks for sharing the List Bert. Would love to add any of those up there. Let’s hope for many more opportunities ahead of us. Keep hustling it up and can’t wait for more purchases you will be sharing with us. 🙂 Cheers bud.

    • HUSTLER!

      Thanks for stopping by. I wish I could buy the five names on the list RIGHT NOW haha Luckily, there will be plenty of opportunities over the years to come that will allow us to build these amazing dividend growth portfolios. Don’t worry about us here, we are going to keep on hustling until we reach financial freedom!

      Bert

  3. Bert-
    Nice list, though I would probably substitute someone for TGT. I own TGT and love the company, but my list would be all financial, industrial, and consumer goods + maybe healthcare. Anyways nice write up.

    Lanny-
    I was in Ohio literally moving at breakneck speed all the time. I have to hit a ton of tiny offices in a very quick window of time, sometimes 5 a day. Each being 1-2 hours apart, you get the idea. I saw downtown Cleveland just enough driving through, same for Akron and most other cities. I will say this, you guys need a hockey team in that city!

    – Gremlin

    • Thanks Gremlin! The fun part of this list is that there were so many companies to choose from. If not TGT, there were dozens of other stocks I could have selected. This list is going to evolve over the years as well, so we should see some names falling on or off of the list. Between WFC, USB, UL, PG, CL, and so on, there are are a ton of great companies to pick from instead of TGT!

      Wow that is a quick trip. So you were in a car getting shuttled around the whole time. Was it throughout the whole state or just in the Northeast Ohio region? If so, I am sure you saw more corn than you know what to do with. We actually do have a hockey team, it is just a minor league team. The closest NHL team is in Columbus, which is two hours away. Unfortunately, I don’t think the city could support a 4th major sports team as 3 is spreading it pretty thin.

      Hopefully you had a great business trip and will consider coming back for a vacation trip!

      Bert

      • Bert,
        It was a big circle around the whole state. I drive around and test equipment as needed in a bunch of locations. I went from the NE of Ohio and looped all the way around back to Cleveland.
        I must say Athens seemed like a really cool spot for hanging out. And of course need to see the Hall of Fames.

        There are a ton of good companies out there at good valuations too. Just need to get some more $ to put into play. I have more work travel, which I dislike the time away but I like the extra $ I save and make.
        -Gremlin

        • Sounds like you had an action packed trip. Athens is a fun college town to hang out it. What’s funny is that I live only 45 minutes away but I have never been to the Pro Football Hall of Fame. No excuses right there. But the Rock and Roll HOF, now that place is fun. I’m a huge classic rock fan, so walking through the exhibits never gets old. Well you will have to let us know next time you make it back and we can hopefully find a way to meet up.

          I’m with you, I wish I had more money to dump into the market right now. Definitely trying to scrape as much as I can together to get the dividend snowball rolling as soon as possible and to take advantage of the current sale.

          Bert

  4. I may have missed this but how often do you go back and review your list to make sure that these are still companies that belong on your Always Buy list? Obviously these companies are high quality and have strong histories but I would think you would review the list every so often to make sure they still fit the portfolio you are looking to build. Great idea!

    • No, you didn’t miss anything. I just didn’t address that topic haha My plan is to update this list annually or if one of the stocks falls out of flavor. You are absolutely right though, this stock needs to be maintained and updated so the information does not become stale and I can identify any weaknesses (or potentially other great companies) that deserve to be included on the list.

      Thanks for stopping by! Have a great weekend!

      Bert

  5. Well, happy to say that 4/5 of your “always buy” stocks are in my portfolio. I would have chosen CAT over TGT as you mentioned though. Still, it’s always good to have an idea of where you’d like to allocate cash when a sudden drop occurs. Sometimes, you don’t really have time to react and when you start to “think” about allocation analysis paralysis sometimes sets in. Thanks for sharing.

  6. I have similar requirements and also I keep a running tab on stocks I really want to own, but always seem to be the most over valued. If there is an entire market dip that has nothing to do with the underlying business itself, I want to capitalize on picking up the stocks that I want to own or add to but haven’t done so due to high prices. CVS was my choice on the flash crash.
    Devin
    P.S. I like and own all 5 and CAT.

    • Chimp,

      Nice choice with CVS. That’s the perfect stock for this kind of a list. Great dividend stock that has been on a tear recently and has traded at a premium. Why not use a broad market pullback to invest in that kind of a company when the price recedes and falls back to normal levels.

      That’s a great point and is similar to how I played the Greece scenario. Look for companies that are getting dragged down by market forces that have nothing to do with their business and cannot impact their free cash flow. If you can identify those companies, you can steal a great dividend stock at a reduced price.

      Thanks for stopping by!

      Bert

  7. Nice list, especially like MMM and JNJ. My “should have” stocks also are CLX, KMB, KO and PG. Of course, it also depends on what you already have in your portfolio!

    Now you’re ready for the opportunities Bert! 😉

    Cheers,

    Mike

  8. Hi!

    Thanks for the article. I, too, want to focus my buying during this downturn on a few names for the long term. I totally concur with MMM and JNJ. Thanks to you I am adding more to EMR today. Some of the others I consider core are UTX, SBUX, CL, CVX, CLX, CAT, CHD. These 10 are my favs.

    Thanks for the good work. Hope to hear more from you.

    Best,

    Jim

  9. Right now my investments are done through Wells Fargo because I do not have experience with the stock market. So basically I need advice. I have about 30K spread out in mutual funds and a Roth IRA. Should I ask my financial advisor about hand picked stocks? I can’t do anything too risky though, I am a single parent and want this money to grow for my son’s future. If anyone has any advice for me I would really appreciate it! I’m trying to learn more about the market and just want to be sure I’m going the right direction. Thanks!

  10. JNJ and TGT yes, but MMM EMR and PEP looks a bit overvalued trading well over 20 P/E. MMM looks a bit flat while PEP and EMR even declining on sales. Actualy TGT has some issues as well (sale decline) but their P/E is atractive enough to bet on their recovery in the long run.

  11. Can’t agree more. These are some great companies to invest in. One of my all time favorite stocks is JNJ.

    And no to oil is very smart, but I still believe in my BP. BP is a very “with the times” company that is investing and integrating more into renewable energy. At the end of the day they are a company that relies heavily on one of the most sought after and politically observant resources, oil.

    10 years ago I invested a significant amount into an oil company called Weaterford (WFT). A few weeks ago they declared Chapter 11…….. so much for going long with them.

    • Galizer,

      Thank you. What stocks are considered your “always buy.” Oil is interesting. I’ve added selectively over the year when I can get my hands on a great company at a great price (XOM). However, I think I am done messing around with oil companies that are not large, integrated oil companies. Your WFT experience is part of the reason why I am sticking to household names.

      Bert

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