Week 384 - Which Dividend Achievers Are Likely To Be Safe & Effective Investments?

Situation: The US stock market is overpriced, as we have documented in recent blogs (see Week 378, Week 379, Week 380). So, the question becomes: Which companies will retain value (relatively speaking) during a correction, yet continue to reliably grow their earnings? We’re likely to find such companies in the 3 remaining Defensive Industries (Utilities, Consumer Staples, and HealthCare). S&P’s Defensive Sector used to include Telecommunication Services but that Industry has recently merged Media to become Communication Services. Newly added companies include Netflix (NFLX), Facebook (FB), Alphabet (GOOGL), Twitter (TWTR), Comcast (CMCSA), and Disney (DIS) -- all of which are Growth companies (as opposed to less risky companies in Defensive Industries).

Mission: Use our Standard Spreadsheet to analyze high-quality companies in Defensive Industries that have increased their dividend annually for at least the past 10 years (earning the S&P designation of Dividend Achiever).

Execution: see Table.

Administration: First, we need to define terms.

SAFE:
1) 16-Yr price volatility is less than that for the Dow Jones Industrial Average ETF (DIA -- see Column M in the Table); 
2) 3-Yr Beta is less than 0.7 (see Column I in the Table); 
3) 7-Yr P/E is less than 36 (see Column Z in the Table);
4) S&P Rating on bonds issued by the company is A- or better (see Column R in the Table). 

EFFECTIVE: 
1) 16-Yr price appreciation is at least 1/3rd as great as 16-Yr price volatility (compare Columns K and M in the Table);
2) S&P stock rating is at least A-/M and S&P Stars rating is at least 3 (see Column S in the Table).

Bottom Line: To be clear, there is no such thing as a “safe” stock. When confidence in the company’s future cash flow evaporates, the stock is quickly priced at Tangible Book Value (TBV) per share. That value is out of reach to stockholders in the event of bankruptcy, since it serves as collateral for the company’s bond issues. So, this week’s blog has 4 criteria for safety (plus S&P’s criteria for its Dividend Achiever designation). When those are added to criteria for relatively stable price performance over the past 16 years, we are left with only 9 stocks to consider. Ask Santa Claus to put a sampling of those in your stocking this Christmas.  

Risk Rating: 4 (where 10-Yr US Treasury Note = 1, S&P 500 Index = 5, and gold bullion = 10)

Full Disclosure: I dollar-average into NEE, JNJ, PG, WMT and DIA, and also own shares in PEP and HRL.

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