Sunday, September 21

Week 168 - Food-related Dividend Achievers With Good Credit Ratings

Situation: We’ve blogged often about the value to be gained from investing in food-related stocks (see Week 152 and Week 161). But there’s a problem. Many of those companies have market values in the mid-cap range and don’t have sterling credit ratings. This poses a problem because elsewhere in this blog we stress the importance of relying on large-cap companies with good credit ratings for your retirement portfolio. We also emphasize the importance of selecting the stocks to include in that portfolio from the list of 239 Dividend Achievers. That way you’ll have dividend income in retirement that grows faster than inflation.

This week we’ve bundled those ideas together to come up with a list of 14 companies (Table) for you to consider for your retirement portfolio. All 3 branches of the food supply chain are represented: production, processing, and distribution. The smallest company to meet our criteria is McCormick (MKC), a spice processor with a market capitalization of $8.6 Billion. As a group, stock in these companies rewarded investors with approximately a 12% total return/yr since the inflation-corrected S&P 500 Index peaked on 9/1/00, and lost 20% over the 18-month Lehman Panic period (Table). This compares well with our “Risk Off” benchmark, the Vanguard Wellesley Income Fund (VWINX), which returned 7.5%/yr since 9/1/00 and lost 16% during the Lehman Panic. Of course, the S&P 500 Index fund (VFINX) did much worse, returning 4% and losing 46.5%.

Bottom Line: You’ll get a lot better “bang for your buck” (and sleep better as well) if you have 3 or 4 food-related stocks in your retirement portfolio. Those have remarkably strong returns, and prices that don’t drop much when the market crashes. After all, everyone needs to eat!

Risk Rating: 4

Full Disclosure: I dollar-average into WMT and also own shares in MCD, HRL, MON, MKC, PEP, GIS, DE and KO.

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