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How does my family do most of its investing?

In earlier essays I described how to use stock charts to pick which companies are worthy and when to buy.

Currently my family invests primarily in stable multinational corporations with solid track records that also pay nice reliable dividends. These companies consistently increase in value. They also provide reliable dividends whose rate exceeds average inflation (which is about 2.5% per year).

In other words, the dividends "protect" our money from inflation. The increase in stock price is actual increase.

Moreover, giant companies that have faithfully paid nice dividends for many years have proved themselves stable and profitable. Creative accounting cannot fake that kind of financial health (especially since the Sarbanes-Oxley Act). They cannot be precariously leveraged (relying on their debt to multiply their profits) and relying available debt financing.

This is the traditional and boring advice for times of economic uncertainty and expected inflation. Not sexy. But safe.

Why not simply invest in a few whole-market ETFs, as some notable economists advise?. We would if the Federal Government and the Federal Reserve were supporting sensible economic policies. However, the current political climate forces us to value stability more than maximizing possible gains.

Dividend Investing

We have picked about thirty companies that make up the majority of our investments. All of them have growth usually greater than the overall market, as I described in the essay about picking worthy companies.

Many of these companies appear in lists of companies that have been paying dividends regularly for more than 25 years or more than 50 years.

Our main investment account allocates 70% to these stocks and 30% to fixed-income ETFs. (The rule of thumb for pre-retiremnt investors is to have thier age minus ten as an appropriate amount to invest in fixed-income products, which are usually bond ETFs or bond mutual funds.)

Then we divide these dividend stocks into 11 categories. Each category overall receives an equally weighted share of that 70% we invest in dividend stocks.

There is another rule of thumb that no investment should be greater than 4% of your investments. This means each category should have at least two stocks: 70% stocks ÷ 11 categories ÷ 2 per category = 3.2%. But for some categories we have not yet found two worthy choices. When that happens we use a whole-market index ETF to fill the gap.

Surely more categories exist. Suggestions with sample representative worthy companies are welcome!

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1. Computers

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo MTS Systems MTSC logo
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1.75 %
logo Seagate STX logo
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3.00 %
logo Western Digital WDC logo
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1.44 %

MTS Systems manufactures test systems and position sensors. Their dividend is below our desired 2.5%, but we still use them to add diversity to this category.

Western Digital and Seagate make computer storage drives. Western Digital had such a good year in 2013 that its dividend rate is now much lower than when we picked it. (The stock price went up, so the fixed 30¢ per share dividend is not a smaller percentage.) Perhaps the company will raise its dividend rate in 2014?

In the past we have invested in Microsoft and Apple. But they are currently too volatile for us.

2. Communications

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart

We recently sold all our Vodafone. It had a bad time in 2014. We have yet to find a replacement Communications company with an acceptable dividend and historical performance. In the meanwhile we are trying Netflix and Pandora Internet Radio, which lack dividends but have been doing well.

We used to invest in Bell Canada, but it did not perform to our standards.

3. Industrial

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo 3M MMM logo
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2.48 %
logo Dow Chemical DOW logo
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2.95 %
logo Illinois Tool Works ITW logo
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2.03 %

3M makes just about everything, and somehow stays consistently profitable.

Illinois Tool Works has alow dividend rate simply because it had a very good year in 2013. Perhas they will increase the dividend rates so they once again exceeds average inflation.

We might also buy some Deere (DE, 2.25%) and Honeywell (HON, 2.01%). Their dividend rates are below 2.5%, but the companies have consistent histories that compensate.

In the past we have invested in Cascade (who manufactures truck lifts) and Caterpillar. But their performance was not consistantly strong.

4. Medical

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo AbbVie Inc. ABBV logo
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3.17 %
logo Amgen AMGN logo
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2.07 %
logo Bristol Myers Squibb BMY logo
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2.74 %
logo Johnson and Johnson JNJ logo
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2.8 %
logo Novartis NVS logo
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3.05 %

Medical companies traditionally pay large dividends. It is easy to find several worthy stocks. We make sure to include companies specializing in both equipment and pharmaceuticals.

Amgen is another company whose dividend rate has gone down simply because it had a very good year in 2013.

In the past we have invested in Baxter, Pfizer, and Steris.

5. Consumer Everyday Needs

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo Tupperware TUP logo
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2.69 %
logo United Parcel Service UPS logo
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2.58 %
logo VF Corporation VFC logo
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1.7 %

Tupperware had a terrible start in 2014. But its track record is otherwise up to our standards. One bad quarter just means it was the right time for a long-term investor to get some of this stock!

VF makes jeans and other clothes. It used to have a very high dividend. We have not sold it since the dividend rate went down because it is growing so well.

We sold our UPS stock in December 2012 when its performance failed to meet our standards. We recently repurchased some.

In the past we have invested in Unilever (who makes all kind of stuff you use at home) and Walmart.

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We also have some Amazon.com, which has no dividend but is a steadily growing company we can temporarily use to make this category have more stocks to distribute risk better.

6. Consumer Luxuries and Discretionary Expenses

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo Cracker Barrel Old Country Store CBRL logo
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2.7 %
logo Hasbro HAS logo
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2.97 %
logo Mattel MAT logo
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3.13 %
logo PetSmart PETM logo
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1.2 %

When families have a little extra money they eat at restaurants and buy toys.

The dividend for PetSmart is low. But the company has enough potential we wanted to own some. Its stock has gone down a lot since October 2013, so early 2014 was an opportune time to purchase some.

7. Food

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo JM Smucker SJM logo
logo
2.28 %

Smuckers makes all sorts of basic food items.

Professional investors normally group together "foods" and "consumer everyday needs". But we consider them two different categories for dividend investing.

In the past we have invested in Coca-Cola, General Mills, Mead Johnson, and Proctor and Gamble. Sadly, none of those companies steadily outperformed the overall market.

8. Energy

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo Seadrill SDRL logo
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9.46 %
logo Sunoco Logistics Partners SXL logo
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3.42 %

My family would rather invest in a different type of energy production than oil. But we cannot find any company besides Seadrill that meets our criteria for dividend investing. Among the oil producers, Seadrill seems the most careful and responsible—its stock price chart reflects a history without accident or scandal.

Sunoco Logistics Partners does well with pipelines and and moving and storing oil. It is distinct but related to the main Sunoco company which drills for oil and operates gas stations.

9. Real Estate

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo Alto Palermo S.A. APSA logo
logo
8.17 %
logo Omega Healthcare Investors OHI logo
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6.3 %

Alto Palermo S.A. is an Argentina-based company that owns shopping malls, shopping centers, offices, and other commercial properties.

Omega owns intensive care facilities, and apparently manages them very well.

In the past we have invested in Senior Housing Properties and in Realty Income Corporation. We also have invested in McDonalds Corp., which is most accurately a real estate company: the frachises make money from selling food whereas McDonalds itself owns real estate, putting its restaurants in prime locations.

10. Firearms

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo Sturm Ruger RGR logo
logo
2.78 %

Most purchases of firearms are for collections or in response to Federal political action. This puts firearms in a different category from other consumer discretionary spending.

11. Finance

Logo Company Name Symbol Links Dividend in Jan. 2014 Chart
logo Blackrock Investments BLK logo
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2.12 %
logo Rockwood Holdings ROC logo
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2.64 %
logo Wells Fargo WFC logo
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2.64 %

Blackrock Investments helps companies manage endowments, pensions, and other issues of risk management and investment. It is the biggest and perhaps best at what it does. Its dividend rate is slightly below the desired 2.5% because it had such a good year in 2013.

Rockwood Holdings stockpiles lithium.

We are not fond of any of the major banks. Despite our bias, Wells Fargo does stand out. It was the first major bank to trade at a premium to book value after the liquidity crisis, and has continued to recover well.