Monday, February 16, 2015

High-Quality, Low-Risk Dividend Stocks

To a large extent we are a product of our environment. Our life experiences not only shape out behavior, but at its very core, they shape our thought process. The Great Depression forever changed a generation of people. It appears the 2008-2009 financial crisis (Great Recession) may be having a similar effect on another generation.

As an investor in the financial markets, I am often stunned when talking to Gen Y Millennials (those born between 1977 to 1994) and learn their retirement savings are primarily low-risk, safe investments such as money market funds, CDs and Treasuries. Many of these Millennials were just building their financial foundation when the financial crisis hit. Some lost everything, including their job, savings and independence.

There are much better alternatives for the ultra-conservative Gen Y investors than money market accounts, Treasuries and CDs. A conservative strategy focusing on high quality, low risk dividend stocks should significantly out-perform the above investments, with very little incremental long-term risk. Based on my risk rating, here are several low risk companies for conservative investors to consider:

3M Co. (MMM) provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives, and other chemical additives. The company has paid a cash dividend to shareholders every year since 1916 and has increased its dividend payments for 57 consecutive years. Yield: 2.5%

Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries. The company has paid a cash dividend to shareholders every year since 1944 and has increased its dividend payments for 52 consecutive years. Yield: 2.8% See full analysis here.

The Procter & Gamble Company (PG) is a leading consumer products company that markets household and personal care products in more than 180 countries. The company has paid a cash dividend to shareholders every year since 1891 and has increased its dividend payments for 57 consecutive years. Yield: 3.0%

Emerson Electric Co. (EMR) designs and supplies product technology, and delivers engineering services and solutions to a wide range of industrial, commercial and consumer markets around the world. The company has paid a cash dividend to shareholders every year since 1947 and has increased its dividend payments for 59 consecutive years. Yield: 3.3%

Chevron Corporation (CVX) is a global integrated oil company (formerly ChevronTexaco) has interests in exploration, production, refining and marketing, and petrochemicals. The company has paid a cash dividend to shareholders every year since 1912 and has increased its dividend payments for 27 consecutive years. Yield: 3.9%

With a diversified portfolio made up of 2/3 stocks and 1/3 bonds you could reasonably expect to earn an average of 8-10% over time. Between 1929 and 1932, stocks lost approximately 85% of their value. In 1933, prices roared back just under 54%. During the 1990's stocks gained around 18% annually, about double the historic average.

What the Gen Y investors haven't realized is that the path they are following carries risk also. Ironically, they may have chosen the most dangerous investment of all and end up losing to inflation.

Full Disclosure: Long EMR, CVX, PG, JNJ, MMM, in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.

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- 5 Lessons Learned About Investing In Dividend Growth Stocks


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