Week 66 - Growing Perpetuity Index (Update)

Situation: In one of our first blogs (Week 4), we created the Growing Perpetuity Index (GPI). This was composed of 12 companies that are listed in the 65-stock Dow Jones Composite Average (DCA) and meet 4 criteria:
   a) dividend yield no less than the yield for the exchange-traded fund (ETF) that mimics the S&P 500 Index (SPY);
   b) 10 or more consecutive years of annual dividend increases;
   c) S&P stock rating of A- or better;
   d) S&P bond rating of BBB+ or better.
Those 12 companies are listed at the top of the accompanying Table, ranked in order of Finance Value (reward minus risk).

This week’s update shows that GPI stocks are outliers, meaning that all 12 companies fell less in value during the Lehman Panic than the S&P 500 Index did and therefore were wiser bets for you to have financed. Taken together, GPI stocks outperformed all but the best hedge funds (see Week 46). Results for a mutual fund (Blackrock Global Allocation Fund-MDLOX) that is issued by a leading hedge fund company serve as a proxy for that industry and are included in the Table for comparison. We also include results for the only mutual fund (VWINX) that allocates assets between stocks and bonds like our Goldilocks Allocation does (Week 3). We also include a leading bond mutual fund (PRCIX) and 4 additional stocks in the Dow Jones Composite Average that either meet our 4 criteria (see above) or soon will (CHRW, SO, MSFT and UNP). 

Bottom Line: There’s no shortage of safe and effective stocks for the long-term investor to own, as long as she owns several. Examples include McDonald’s (MCD), NextEra Energy (NEE), Procter & Gamble (PG), ExxonMobil (XOM), Southern Company (SO), CH Robinson Worldwide (CHRW), Chevron (CVX), and IBM. If you add $$ electronically each month to dividend reinvestment plans (DRIPs) for each of these stocks, you can stop worrying about market swings--you’ll come out right as long as you keep your nerve. But remember to balance your stock investments (other than utilities like SO and NEE) 50:50 with bond investments (e.g. PRCIX), for reasons we’ve discussed previously (see Week 3).

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