Week 92 - Quarterly Update of Master List - Q1 2013

Situation: In assembling The ITR Master List for stocks, we need to be detail-oriented and non-speculative (see Week 43, Week 52, Week 65 and Week 78 for review). Otherwise, you might as well invest in the lowest-cost S&P 500 Index fund (VFINX). Why? Because its total return can’t be beat on a long-term, risk-adjusted basis. But that degree of risk (as we know from 2008 when the Index lost 37.22%) could wipe out a large chunk of your savings just as you’re beginning retirement. So, if you’ve been a steady reader of this blog we know you’re striving to accumulate stocks and mutual funds that will do almost as well as VFINX but with half the risk.

Here at ITR, we dial back the inherent risk of stocks by looking for companies that
1) pay a dividend of at least the 15-yr moving average for the S&P 500 Index (1.8%);
2) have increased dividends annually for at least 10 yrs;
3) have increased dividends at least as fast the S&P 500 Index (6.5%/yr);
4) have an S&P A-rating on their common stock;
5) are less than 50% capitalized by long-term debt;
6) have a return on invested capital (ROIC) sufficient to cover their cost of capital, which is at least 8%/yr for companies other than banks;
7) have positive free cash flow per The WSJ.

Our database is the S&P Dividend Achievers, the 201 companies that have increased their dividend annually for at least the past 10 yrs (plus those into their 10th year of raising dividends). In our Table this week, we show only the 16 stocks that lost less than 65% as much as VFINX during the 18-month Lehman Panic. We’ve added our favorite balanced fund for comparison, the Vanguard Wellesley Income Fund (VWINX).

Bottom Line: Just remember to invest a little at a time on a regular basis, which is most easily done by using a dividend reinvestment plan (DRIP). And maintain at least half a dozen DRIPs.

Risk Rating for the aggregate of 16 stocks: 4.

Full Disclosure: I own small amounts of stock in MCD, WMT, HRL, MKC, KO, JNJ, PEP, XOM, CVX, BDX, CHRW and PG--to get the annual reports e-mailed to me as soon as possible, and to “eat my own cooking.”

Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com