Why I Talk About the Same Dividend Stocks All the Time

by Dividend Growth Investor | September 3, 2013 1:00 am

Why I Talk About the Same Dividend Stocks All the Time

Dividend investing is so boring, it makes watching paint dry up look very exciting in comparison. You get to identify a few great quality companies, and then continuously try to purchase them at attractive valuations.

Unfortunately, some of my readers are unhappy with the fact that I keep writing about the same stocks over and over. The point is that once I tell you how great Coca-Cola (KO[1]) or Wal-Mart (WMT[2]) or Exxon-Mobil (XOM[3]) are, it seems that there isn’t really much more to learn.

I think these readers might have a valid point that I do tend to write about a select few companies in some of the articles discussing strategy. I can understand how this could sound boring.

However, on the strategy articles I write, I use ideas like Wal-Mart, McDonald’s  (MCD[4]) etc, merely as an illustration of a principle. It is true that I can use a company like Lowe’s (LOW[5]), Automatic Data Processing (ADP[6]) or Brown-Forman (BF.B[7]), but then some readers would be unhappy because these stocks are really expensive today.

The problem is that there are only so many dividend stocks that are both 1) cheap to buy from a valuation perspective[8] and 2) something I would consider quality companies[9].

My starting point is usually the list of dividend champions[10] and dividend contenders, that Dave Fish so graciously updates every month. For example, out of thousands of stocks traded on NYSE, Nasdaq and AMEX, only 105 have managed to boost dividends for over 25 years in a row.

While I do focus on companies with long histories of consecutive dividend increases[11], I do not find all of them investable from my point of view. Every dividend growth investor has their own nuance to the strategy of course, but as a rule I tend to avoid companies I do not understand very well.

For example, I am not very good at predicting whether Microsoft (MSFT[12]) or Intel (INTC[13]) have the same durable competitive advantages like Coca-Cola for example. I cannot foresee how disruptive changes in technology could result in changes in the way users consume computing resources. However, I can reasonably expect that people would still use the refreshment of one of the 500 drink brands that Coca-Cola sells worldwide. If you understand Microsoft or Intel better than I do however, then this is your edge and you should be sticking to it.

I believe readers like to both hear about quality companies, but also want to hear about them when I think they are priced attractively. If I think Wal-Mart  is cheap today[14], I would keep writing about it. If Procter & Gamble (PG[15]) is fully valued, I might not write about it.

With the current bull market, oil Chevron (CVX[16]) and, ConocoPhillips (COP[17]) and some retailers Wal-Mart and Target (TGT[18]) are the ones I have been eyeing on. This is why I keep writing about them over and over.

The thing to consider is that different quality dividend stocks are available for sale at different times. For a period of 2008 – 2012, the companies like Johnson & Johnson (JNJ[19]), Procter & Gamble, Kimberly-Clark (KMB[20]) and Colgate-Palmolive (CL[21]) were attractively valued. This is why I kept using them as examples to illustrate my points in in my articles on dividend investing. Once they stopped being attractively valued per my understanding, I stopped writing about them, except as an opportunity to vent about their overvaluations.

On the other hand, I do post a weekly stock analysis almost every Friday, where I do try to feature a different company. I have found however that the majority of readers are mostly interested in hearing about the Johnson & Johnson and Coca-Cola of the world.

Unfortunately, very few readers are interested in little known companies such as Dr. Pepper Snapple Group (DPS[22]), Casey’s General Stores (CASY[23]) or Ameriprise Financial (AMP[24]) for example.

At the end of the day, dividend investors should focus on the types of companies they understand[25], and then keep buying them when they are attractively valued. Dividend investing is a slow and steady process, as it takes years of meticulous monthly contributions, before you build a decent income base that allows you to retire. If you specialize in the right types of quality companies, you understand how they make money and you expect them to keep churning higher profits and dividends, then I do not see a reason to keep looking elsewhere just for the sake of looking elsewhere.

Full Disclosure: Long WMT, TGT, DPS, CASY, AMP, JNJ, KO, PG, CL, KMB,

Endnotes:
  1. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  2. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  3. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM
  4. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  5. LOW: http://studio-5.financialcontent.com/investplace/quote?Symbol=LOW
  6. ADP: http://studio-5.financialcontent.com/investplace/quote?Symbol=ADP
  7. BF.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=BF.B
  8. from a valuation perspective: http://www.dividendgrowthinvestor.com/2012/02/does-entry-price-matter-to-dividend.html
  9. consider quality companies: http://www.dividendgrowthinvestor.com/2011/10/seven-wide-moat-dividends-stocks-to.html
  10. list of dividend champions: http://www.dividendgrowthinvestor.com/2011/02/dividend-champions-best-list-for.html
  11. of consecutive dividend increases: http://www.dividendgrowthinvestor.com/2010/03/ten-year-dividend-growth-requirement.html
  12. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  13. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  14. is cheap today: http://www.dividendgrowthinvestor.com/2013/08/wal-mart-stores-wmt-high-dividend.html
  15. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  16. CVX: http://studio-5.financialcontent.com/investplace/quote?Symbol=CVX
  17. COP: http://studio-5.financialcontent.com/investplace/quote?Symbol=COP
  18. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  19. JNJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNJ
  20. KMB: http://studio-5.financialcontent.com/investplace/quote?Symbol=KMB
  21. CL: http://studio-5.financialcontent.com/investplace/quote?Symbol=CL
  22. DPS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DPS
  23. CASY: http://studio-5.financialcontent.com/investplace/quote?Symbol=CASY
  24. AMP: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMP
  25. types of companies they understand: http://www.dividendgrowthinvestor.com/2013/08/your-best-ideas-might-already-be-in.html

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