Maybe you’re not one of the millions addicted to PBS’ Downton Abbey, if you aren’t I won’t bore you, but my favorite character is the pretentious and pompous but well-meaning Lord Grantham who lost his fortune on stock in a Canadian railroad that went bankrupt. “But it was a sure thing,” he bleats.” Everyone one said it was a sure thing.” His man in the city, as he calls his stockbroker, dourly reminds him they had warned him to be more diversified.
Now after a bailout by his son-in-law they argue over the management of the estate, Lord Grantham suggests they invest the estate funds with…”some chap in America, Ponzi,…er Charles Ponzi, he guarantees a return in three months.” Doh!!! Poor boneheaded Lord Grantham. Two lessons, here: diversification and if it sounds too good to be true and so on.
You don’t need a man in the city to tell you to diversify and not to invest with crooks. What has a respectable yield and is as sure a thing as you’ll ever see in the market? In honor of our silly earl, I present you The Dividend Aristocrats, companies that have consistently raised their dividends for 25 years or more.
Profits With Pedigrees
Less than 100 companies usually make up the list, making up a Wall Street version of Debrett’s. Finding a safe yield with not too high a payout ratio (thereby excluding REITs and MLPs) winnows it down and choosing the best of the best led me to energy stock Chevron Corporation (NYSE:CVX) , which I picked over Exxon Mobil Corporation (NYSE:XOM) because its yield is higher at 3.10%. Also Chevron is performing more nimbly, up 10.95% with a lower P/E of 8.75. It also has a sustainable payout ratio of 26.00%. The return on equity is a respectable 20.54%.
Another thing about Chevron is that it has chemicals and mining divisions so it’s not just an oil company. It also has interests in coal, insurance, real estate and alternative fuels. This major integrated oil company was founded in 1879.
The antithesis of Charles Ponzi was American financier J.P. Morgan whose company JPMorgan Chase & Co. (NYSE:JPM) is still around after 190 years. Dunderheaded Lord Grantham would have done much better to invest in JPMorgan. All corporate governance risks are low despite the London whale trading scandal of last year. The company trades at a 9.45 P/E with a 2.50% yield at an even more sustainable payout ratio of 22%.
JPMorgan stock has outperformed the S&P 500 up 31.39% compared to 13.95% for the S&P and just hit a 52 week high on February 12 which is another reason I picked it. Investors are trying to get in before the March Federal reserve stress test which it will undoubtedly pass with flying colors. The big bank will then highly likely raise the dividend. J. P. Morgan is trading under book and CEO Jamie Dimon raised guidance for 2013 at the last earnings release.
Parker-Hannifin Corporation (NYSE:PH) is a global manufacturer and supplier of motion control products mainly for automobiles, airplanes, tractors, and machine tools and thus is a good barometer of the health of the industrial economy. This is another name that hit a 52 week high on February 12. And why not with a forward P/E of 12.67 and a 1.80% yield with a payout ratio of 24.00%.
This is one of those names with so many moving parts (literally, all those pumps and valves) that it ends up being an industrial consumer discretionary name with its international exposure as well as ever growing yield. It rounds out the portfolio for the infrastructure and industrial upgrades the President called for in his State of the Union speech.