Investing in Industries that are for LIFE

Here we are, sitting a few months into the calendar year and investment opportunities are difficult to come by.  However, we are all living and breathing, right?  We are all drinking water, eating food and have items in our life to reduce risk of loss, correct?  Have you considered that if all else fails and dividend stock opportunities are tough to come by, to invest into an industry that will be around, as long as we are simply, living?  That’s the focus of my article today.  I really want to get down to basics of what one could invest in if you are afraid of the next pop, the fizzle out of the latest start-up tech company or fall of a once-was retail giant?high-angle of houses over flooded ground

When living in the U.S., there are three areas of life that I can conclude you need to have.  Water, Food and (sadly) Insurance are the three areas that are in everyone’s life in the United States.  Whether you are young, old, male or female, you will need water, food and some form of insurance (think, auto, health, house, life).  Similarly, whether you live in Ohio, Florida, California or Nevada, these three facets of life requirements are in everyone of us.

I want to list out those three areas of life and provide opportunities for dividend stock investments that align with those necessities.  I will be considering our Dividend Diplomat Stock Screener, but this will be more basic with minor metrics being used.  Who is ready to see what investments can be made into the areas that we use EVERY day in our LIFE?!  Let’s see who and what I am talking about.

Water

Your body is composed of up to 60% water, give or take 10%.  This is no joke, see the respectable chart below.  Further, they recommend 8 glasses of 8 ounces of water per day, or 64 ounces.  In addition, to wash your clothes and body, water is (typically, cough) required.  I am Italian and love to make pasta, guess what that currently needs?  Water.  Enjoy beer?  Water is the number one ingredient right there.

If you are looking for an investment, what about a water company?  My wife currently owns Aqua America (WTR).  Aqua America is a major player in the eastern part of our country and has a long history of paying and increasing dividends.  Further, their market capitalization is close to $7 billion and they handle water service for over 3 million people.  Oh and they’ve been around for over 130 years.  WTR has a price to earnings of approximately 25, a dividend yield of 2.41% and a payout ratio of 59%.

They aren’t the largest service provider of water, however.  An even LARGER water company is American Water Works (AWK), whom has been around for over 130 years and serves over 15 million people!  How does AWK’s dividend metrics stack up?  They yield 1.75%, carry a payout ratio of 51% and a price to earnings of 29.  They are priced higher in comparison to WTR and carry less yield.  I like WTR over AWK in this scenario.

Food

There is absolutely no question.  We need to eat to fricken survive.  I eat practically 5-6 times per day, smaller meals, but eat fairly often.  I also don’t find myself as being a rare case.  In fact, I know many individuals that eat as often as me and the food has to come from somewhere.  Well, why the heck wouldn’t you invest in a company like Archer Daniels Midland (ADM).  ADM makes/produces seeds, such as sunflower, flax-seed and canola oil, but also corn products, used in many items we eat everyday.

Don’t like ADM?  Well, there is also Bunge Limited (BG) and they do mostly the same things and are a direct competitor to ADM.  ADM has been on my watch list for some time, and being that they produce necessities for living, it’s never a bad bet.  Oh, and they are an aristocrat too.

Photo Of A Toast

ADM, however, carries a current price to earnings of 12.40, with a yield and payout ratio of 3.25% and 40%, respectively.  What about BG?  BG’s price to earnings is almost 19x, with a dividend yield and payout ratio of 3.83% and 71%, respectively.  A more difficult debate, but ADM appears more attractive, given their payout ratio and lower valuation, from the price to earnings perspective.

Insurance

If you are living in America, then there is 3 insurance pieces almost required at this point, but you could arguably get around them.  However, those 3 pieces are health, car and home/rental insurance.  If you are breathing, you or someone you love is paying for your health insurance.  Unless you are living below a level of income, you are even penalized if you don’t have it!  Now, ain’t that America?!  The same is going to be for transportation, unless you are smart, don’t have to drive a car and can walk/bike/take public transportation!  Therefore, line up that auto insurance while you are at it!  Old enough to live on your own and required to have renter’s insurance or own your house, just in time to spend a boatload on house insurance?  Sign it up!

Health, Care, Medicine, Healthy, Doctor

If you are thinking health insurance, take a look at United Health Group (UNH).  They are one of the biggest companies in the world and serve over 100 million people.  Further, they currently trade at $248.78, with a price to earnings ratio of 17 and a dividend yield & payout ratio of 1.47% and 25%, respectively.  They have AMPLE room to continue to grow their dividend, with their most recent increase of 20%!  Talk about dividend growth.

How about driving a car?  Let’s take a brief look at auto insurance carriers, such as All State (ALL).  All State currently yields over 2.1% and has a price to earnings of 10.5, which is fairly minimal.  Their payout ratio represents 22%, letting investors know they can increase their dividend, no problem.  In fact, their recent increase was a solid 9% and before that, a staggering 24%.

Whether you want health or auto insurance, there are plenty of others where that came from.  You have Aflac (AFL), MetLife (MET), Cincinnati Financial (CINF) and plenty of others, that all pay out dividends, bring in solid cash flow and service millions of customers.

life required dividend stocks conclusion

The stock market has jumped over 13% year-to-date, pushing earning multiples higher.  Investment opportunities are slimmer this year, but maybe I sound like a broken record.  You could save your cash in a 2.20% ally savings account, one of our Financial Freedom products, or you could invest in a dividend growth stock, in a required area of life.  What would you choose?

There are more people being born each day.  That is another individual that will more than likely require health or auto insurance during that lifetime.  Further, they are going to have to drink liquids and eat food, to stay alive (Unless in 2025 there are means to live without any of the two!?).  Is it me, or is it just wild that there are companies that will have customers, for the end of time?  This is very interesting to me.

I’ll give you my thought on the above analysis and discussion.  They have to be undervalued and yield higher than a savings account.  Therefore, ADM looks the best out of the bunch and I may consider adding to my position.  However, I am curious on what YOU think.  Please share your perspective, other areas of the analysis not considered and your conclusion to invest in areas that are required to live!  Talk soon, good luck and happy investing!

-Lanny

Facebooktwitterredditpinterestlinkedinmail

16 thoughts on “Investing in Industries that are for LIFE

  1. I think about dividend investing in a similar way focusing on companies in “essential service” industries. Food has a good size position in my portfolio. And I have a couple of insurers. Water stocks are typically some of the safest around, but they have never had much appeal to me due to low yields combined with relatively low dividend growth rates. Maybe I will revisit the sector. Thanks for the write-up! Tom

    • Tom –

      Appreciate the comment and glad you share that mindset. It’s funny, NOT MANY own the companies that are essential for living, specifically water, haha. It cracks me up actually, because even I don’t, but glad my wife does : )

      -Lanny

  2. WTR has always been a company on my radar, but I’ve never managed to pull the trigger as they’re always a bit too pricey for my liking. Maybe one of these days I’ll come to my senses and realize that WTR provides services that we can’t actually live without lol. They’re technically about fair valued at this point in time it appears, so it’s something I’ll consider adding eventually if yield remains steady around 2.5% once I have tons of capital to deploy early next year.

    • Kody –

      Yep, my wife owns quite a bit of WTR actually. If you look at their recent price trend, they’ve actually come down a little bit this week. They are usually trading close to fair value, but damn, are they consistent or what to their dividend growth.

      -Lanny

  3. How do you feel about ORI (Old Republic) for an insurance selection? I believe they are on the Dividend Champions List . It is not the highest yield, but has clearly been paying a dividend (including special dividends) for a long time.

    • Adrian –

      They could be in the mix, they have a lower growth rate, but the yield slightly offsets it at 3.8%+. I noticed during the 2008-2009 era, dividend remained but did not grow for a small period. Great company, LONG history. Love it, no doubt.

      -Lanny

  4. Lanny,
    Long WTR and ADM. These industries, and a few others are definitely things that will be needed for life. I am a big fan of things like this that are just needed. So many thing people take for granted that these groups provide. Clean water and electricity are the best examples. Save the random well / off grid person, we all just turn on switch and expect the resource.
    – Gremlin

    • Gremlin –

      Couldn’t agree more and glad we see eye to eye on this. It’s funny, I always come back to this question – if nothing else looks undervalued in the market, should you just buy a utility, or ADM, etc.? Kills me!

      -Lanny

    • Adrian –

      Thank you, thank you! Such a privilege to receive the comment, honored, tremendously. We hope you have a great weekend and DO NOT HESITATE to let us know if you ever have any questions.

      -Lanny

  5. I really like the theme of this article, but I’m not sure companies “are for life”. While the world will always need food, water and insurance (I would have gone for banks 😉 ), there will be tons of various ways to access/distribute/make it.
    What if there is a new “food” making oilseed and corn obsolete?
    What if we can drink “sea water”?
    Even the oldest products/services evolves and many companies go bust because they can’t adapt. I’m treating life related companies the same way I treat others. They don’t get more points for being in those industries. When you think about it, many would argue that their smartphone is essential to their life 😉 haha!

    • DivGuy –

      Touche, touche! I guess you could drink sea water and use a 3D printer to eat food going forward, or something, right?

      There are valid points, though. Companies need to adapt to changing behaviors, technologies and taste. Further, we don’t know what to expect, so one must always have to evaluate a company to see if they are fundamentally sound and have operations in place to perform today and going forward. Appreciate the comment, as I find it helpful!

      -Lanny

  6. I hear the argument about investing an life long industry but I more try to invest in life long companies. Some companies have always succeeded no matter what was thrown at them and that’s who gets my vote.

    Even if I invest in a great industry I can still chose a company that will fail pretty easily 😛 So I just stick to the proven boys.

  7. I like this article.
    One of my earliest purchases, any my overall biggest equity gainer is AWR. And in the food world, my second biggest all time equity gainer is MCD. For insurance I have owned ORI, TRV, AFL for quite a while.

    These 3 industries are must haves.
    – John

Leave a Reply

Your email address will not be published. Required fields are marked *