A Portfolio of Winners, It Doesn’t Have to Be Complicated

By Friday, December 7, 2012

Portfolio of WinnersIf you put a list together of some of the greatest blue chips the stock market has to offer, you might include The Procter & Gamble Company (NYSE/PG) among others. Procter & Gamble is just the kind of company that can thrive in a slow-growth environment. Institutional investors like it for its dividend (current yield is about 3.2%) and stability. The company offers predictability for stock market investors.

I remember when Procter & Gamble had a big miss in its quarterly earnings, right at the time when the bubble in technology stocks was bursting. The stock was basically cut in half and took a solid five years to recover—five full years, just to get back to where it was trading on the stock market before the breakdown. Even for a growing blue chip company, that’s a long time for investors.

This fiscal year, Procter & Gamble’s revenues and earnings are expected to be about flat with last year. Current expectations for fiscal year 2013 are for earnings-per-share (EPS) growth of approximately eight percent. Combined with its dividend, you could argue that this blue chip company is doing its job. The company’s stock market chart is below:

Procter & Gamble’s Company Chart

Chart courtesy of www.StockCharts.com

Other dividend paying blue chips with great track records on the stock market include Colgate-Palmolive Company (NYSE/CL), International Business Machines Corporation (NYSE/IBM), PepsiCo, Inc. (NYSE/PEP), and Johnson & Johnson (NYSE/JNJ). I would argue that all five of these blue chip stocks are worth considering when they’re down. With dividend reinvestment, I think this group makes for a great stock market portfolio.

The one thing that’s in short supply these days is growth, and things are likely to remain low and slow for the next several years, possibly for the rest of this decade. (See “Where’s the Good News? Companies Just Meeting Expectations.”) This is why stability and size win in an environment like this. When business is slow, costs get squeezed and balance sheets typically improve. And with stability of cash flow, dividends get paid.

Large-cap blue chips have been particularly strong on the stock market since the financial crisis in 2008/2009. In spite of the doom and gloom back then, one of the best trades going was to ignore the hysteria and buy a basket of blue chips. It’s a simple, yet effective investment strategy that I believe in. Buy the best dividend paying companies in their field, and reinvest the quarterly dividend income in new shares. When the next recession comes, it will be an attractive buying opportunity for long-term investors.


About the Author | Browse Mitchell Clark's Articles

Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »

Sep. 4, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.62%
10-year U.S. Treasury Yield 2.19%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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