Situation: There is increasing evidence that the US economy is moving away from the deflationary effects brought about by chronic trade deficits. This translates most directly into a recovery of the manufacturing sector, which we’re already starting to see. But emerging markets are the driver of industrial equipment sales, and those markets remain in a state of flux). Let’s take a closer look at what S&P classifies as “industrial” companies, since 11% of the S&P 500 Index consists of stocks issued by companies in that industry.
We’ve taken the Barron’s 500 List and pulled out the 16 “industrial” companies that are Dividend Achievers with good S&P bond ratings (Table). Of those 16 companies, 12 are manufacturers. Five are either defense companies, such as Lockheed-Martin (LMT), Northrop Grumman (NOC), and General Dynamics (GD), or they manufacture and service equipment for the aerospace industry, i.e., United Technologies (UTX) and Parker-Hannifin (PH). Two build agriculture, construction and mining equipment, Deere (DE) and Caterpillar (CAT). The 5 remaining companies are niche operators, Stanley Black & Decker (SWK), Illinois Tool Works (ITW), 3M (MMM), Dover (DOV) and Emerson Electric (EMR).
What about the other 4, the ones that don’t build stuff? Well, that’s the same story you’ve heard since the California Gold Rush days, namely that gold miners didn’t make nearly as much money as their suppliers, who made a lot. Industrial companies that supply and distribute parts (WW Grainger, GWW), transport manufactured goods (Norfolk Southern, NSC) or clean up messes (Waste Management, WM and Republic Services, RSC) do quite well.
Bottom Line: The US trade balance looks to be improving, which means our manufacturing sector is seeing an uptrend in exports. These “industrial” companies endured a hard decade to start the 21st century but are now in recovery mode, steady but slow.
Risk Rating: 6
Full Disclosure: I own shares of UTX, DE and MMM.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Sunday, September 28
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.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
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.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
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