I also bought shares in Kellogg (K) for the Roth IRA portfolio, using the same logic that I used for General Mills. Food staples usually grow at a steady rate, have quality brands, and manage to reward shareholders with rising dividends over time. I was particularly attracted by Kellogg, because the earnings figures in most financial databases do not show the true earnings power of the company. My Yahoo finance screen shows that Kellogg is trading at 23.90 times earnings. Therefore, a lot of investors are likely ignoring this stock, because they think it is too expensive. However, the company is expected to earn $3.77/share in 2013. At current prices, this translates to a P/E of 16.60.
Unilever (UL) operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Turkey, Europe, and the Americas. I used the dip early in the month to acquire some more consumer staples in the Roth Portfolio. Unilever is a good candidate for a long-term buy and forget holding, because of the broad diversity of staples it offers on a global scale. I like the steady growth in earnings, distributions, although I would prefer P/E ratios below 16- 17 for companies like Unilever. This international dividend achiever has rewarded shareholders with rising dividends for 14 years in a row. When looking at international stocks, one needs to look at dividend growth in local currency, not US dollars. The company is under the radar, as David Fish has erroneously removed it from his list, probably because of his focus on US dollar dividends, not in their value in Euros. Currently, it trades at a P/E of 19 and yields 3.50%. Check my analysis of Unilever.
Clorox (CLX) is the purchase in the Roth, which is the most questionable one. I like the company a lot, its history of raising dividends for 36 years in a row, and the ten year dividend growth at 11.30% per year. Unfortunately, the stock is trading at the very high points of the acceptable entry valuation I am willing to pay for a dividend paying stock. I would much rather pay 15 times earnings for this stock, like I did when I accumulated my position in the company in taxable accounts over the past five years. However, I believe that a quality business like Clorox can churn out an ever rising stream of earnings, that would result in rising dividends to me for decades to come. The stock is trading at 19.40 times forward earnings, and yields 3.30%. Check my analysis of Clorox.
I plan on doing a few more trades by the end of November, after which I won’t make any contributions to this account until sometime in 2014.
This is just an illustration of what one can do even with small amounts of money. It is not a recommendation to buy these stocks however. I also invest my funds in slightly different lots, typically at $2,000/position these days. However, when I started building my dividend portfolios, my position size was $100/stock. If I can cover 50 – 60% of expenses with dividend paying stocks, so can you!
Full Disclosure: Long all companies listed in this article. (except ACN)