Hey everyone! Hope everyone has started to enjoy their weekend! Looks like I am taking it easy on this Friday night, which I hope to share with everyone why I’ve been tired, with a lot of things on my mind lately. Regardless, I was sitting at my kitchen table doing mad pushups and reading articles, and thought – I’d love to share my point of view on the top 5 foundation dividend stocks that I think every beginning investor should have. Also, this could work for any investor really, especially one that is also transitioning from more of the “sexy” type of investing into something that we dividend investors feel – just makes more sense.
Stage 1 – Dividend Aristocrat
I feel that to make the top 5 foundation dividend stocks – one should be a dividend aristocrat, or one who has raised dividends for 25+ years. To see the active list, go here. That link to BuyUpside is actually a very useful page that I used when I first began investing back in the day. From reading that list, there are over 50 dividend paying stocks that have paid and increased dividends 25+ years! Quite a list if you ask me. Therefore – we have just wittled down the entire market into 50-53 stocks, what a screener, huh? Let’s see what Stage 2 has.
Stage 2 – 2.50% Yield
Not only do I think the top 5 foundation dividend stocks should be an aristocrat, but I think they should first have a yield higher than the market as a whole (over 1.8/1.9%), but I also think they should be over 2.50%, a little more greedy, huh? This literally cuts the list in half, I believe, to 26 stocks. I think that makes it easy for us. We literally have taken thousands of companies that are trading, took the nonsense out and said Hey – here are 26 stocks to look at.
Stage 3 – 5 Industries
Now that we are down to 26 stocks, we need to pick 5 different industries. Think of being a consumer. What do we need? What do we rely upon? I would said energy/utilities is one. I would say food products would be another. What about healthcare type items? I think I can agree with that. What about communication, such as – to call, text, cell call, use the internet to e-mail? I believe that is highly needed in this day and age, with the trend to continue the usage.
Step 4 – The Stocks
Okay, the moment we have all been wanting to come see – what stocks did the dividend diplomats choose to have as their top 5 foundation dividend stocks for a portfolio. We wanted to make sure we were all in different areas/industries. This helps diversify and spread the risk – if one industry is poorly performing, the other may not be. Further – it’s always nice owning more – to spread more eggs in one basket, because even if you owned stocks within the same industry – there may be better players than others. As a rule though – completely different industries would be your best first bet. As very unintelligent as this sounds – we wanted to pick companies that we have all heard of, that we see ourselves, family members and friends all use and enjoy. This makes it easier, as the company tends to never go out of style or, for a fun little pun, goes out of stock, hehe, we crack ourselves up let me tell ya (joking!). Without further-a-do, the top 5 foundation dividend stocks we are selecting are….
- McDonalds (MCD) – Food. Stock metrics –> 40 year growth rate = 13.19% on an annual basis. Current P/E Ratio = 24.31 Current Yield = 2.51% Current Payout Ratio = ($4.64/7.61) 61%. Everyone loves the golden arches! Selling billions of hamburgers worldwide – it’s an internationally recognized company who continues to put smiles on individuals faces at every meal. Great yield, solid payout ratio, growth rate for more than 38 years, and a decent/at market price to earnings ratio.
- Procter Gamble (PG) – Consumers goods. Stock metrics –> 40 year growth rate = 7.93% on an annual basis. Current P/E Ratio = 19.61, Current Yield = 2.91% Current Payout Ratio = ($2.869/5.02) 57%. We see the name everywhere, we see them on the back of our packages – does Pampers, Bounty, Tide, Dawn, Crest, Gillette – all ring a bell? They should – I know I shave, use soap, brush my teeth, wash clothes and well – don’t change diapers yet.. but if I did – well PG is all over it.
- Johnson N Johnson (JNJ) – Healthcare Products. Stock metrics –> 40 year growth rate = 9.55% on an annual basis. Current P/E Ratio = 24.27 Current Yield = 2.60% Current Payout Ratio = ($3.60/5.70) 63%. Ever cut yourself and needed a band-aid? How about Neutrogena for your high school induced acne or pimples? Losing some hair – throw on some Rogaine. Splenda, Tylenol, Listerine, Visine, Benadryl, Acuvue, Neosporin – all JNJ brands. You better believe it.
- Consolidated Edison (ED) – Utilities. Stock metrics –> 44 year growth rate = 7.22% on an annual basis. Current P/E Ratio = 18.66 Current Yield = 3.58% Current Payout Ratio = ($2.96/4.43) 67%. Thomas Edison, need I say more? Also, we performed a stock analysis back a month ago on this utility giant. Always need to have light, plug things in, etc..
- AT&T (T) – Telecommunications. 30 year growth rate = 4.67% on an annual basis. Current P/E Ratio = 10.81 Current Yield = 6.62% Current Payout Ratio = ($2.04/2.85) 71%. I have purchased AT&T a few times and they have a low growth, but sweet yield model – great to add a bang to anyone’s dividend income portfolio starting out! From Cell phones, to U-Verse, Direct TV, Movies (Time Warner), House lines, Internet – AT&T can provide it.
*Updated through 3/1/19
As always – definitely look at our dividend stock screener to also filter out different metrics to use. Also – a stock or two from above may ended up on our October Dividend Stock Watch List – check that out when you have time! I know Bert & I both own a few of these listed above. However, isn’t it easy to see why these 5 above should be a strong top 5 foundation dividend stocks for a portfolio? Can you disagree these are 5 bad names to start with? Are there others that you would consider before purchasing these to begin with? Obviously – all based on what valuation you give it – is it under or over valued – but I feel these are strong staples for anyone’s portfolio. I would appreciate the feedback to see your viewpoints, feedback and what you think should fall into this category! Thanks all for stopping by – have a great weekend!