Sunday, December 20

Week 233 - Barron’s 500 “Industrials” That Are Dividend Achievers

Situation: The US dollar is outperforming all other major currencies, which decreases demand for goods shipped from the US to world markets. As a result, earnings for US industrial companies that gain most of their sales overseas have fallen 20-50%. This weighs on their stock prices but creates an opportunity for investors, provided the management of those companies is aggressively preparing for the day when other currencies recover. 

Mission: Take a close look at large industrial companies and their performance over the past 3 yrs, as detailed in the 2015 Barron’s 500 List. Then determine which of those have a long history of relatively steady growth, as expressed by having a 10+ yr history of raising their dividend annually. S&P calls such companies Dividend Achievers.

Execution: All of the “industrials” that appear on both lists are found in the accompanying Table, except those that have an S&P bond rating lower than BBB+ or an S&P stock rating lower that B+/M. Information on price appreciation (over the past 25 yrs) and risk of loss, per the BMW Method, is found in Columns M through O of the Table. Four companies did not have 25-yr price appreciation data and are not included in the Table.

Bottom Line: Industrial companies, as a group, carry almost 10% higher risk of loss than the S&P 500 Index. That is offset by price appreciation that is almost twice as great. If you’re going to invest in this sector, you have to be in it for the long term and expect some rough years. 

Risk Rating: 7

Full Disclosure: I own stock in UTX, ITW, MMM, and DE.

NOTE: Metrics are current for the Sunday of publication; metrics highlighted in red denote underperformance vs. our key benchmark, the Vanguard Balanced Index Fund (VBINX). Column C in the Table lists the total return/yr on a stock purchase made 9/28/92, the first day of trading for VBINX.

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