In my dividend database, I track nearly 190 stocks in 19 different sectors. Generally, the characteristics of certain sectors tend to match those that dividend growth investors are looking for, thus their constituents are often make better dividend investments. In the case of the stocks I track, nearly half of them are in these three sectors:
I. Consumer Goods (13%)
Consumer goods are items purchased for personal or household use. These would include items such as soap, detergent, cleaning supplies, toilet paper, toothpaste, candies, sodas, etc. These tend to be non-cyclical and many of the products are low cost. Since the demand for these products are less affected by the economic cycle and the industries are mature, the companies tend to generate relatively stable and predictable cash flows. These characteristics are exactly what you look for in a great dividend company. Below are some examples of companies in the consumer goods sector:
Colgate-Palmolive (CL) is a consumer products company, whose products are marketed throughout the world. Colgate’s Oral Care products include toothpaste, toothbrushes, oral rinses, dental floss and pharmaceutical products.
Analysis | Years of Dividend Growth: 47 | Yield: 2.44%
McCormick & Company (MKC) primarily produces spices, seasonings and flavorings for the retail food, food service and industrial markets. Trademarks include McCormick and Schilling.
Years of Dividend Growth: 24 | Yield: 2.70%
Procter & Gamble (PG ) is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries.
Analysis | Years of Dividend Growth: 53 | Yield: 2.90%
Coca-Cola Company (KO) is the world’s largest soft drink company. It engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates, fruit juices and syrups worldwide.
Analysis | Years of Dividend Growth: 48 | Yield: 3.35%
Kimberly-Clark Co (KMB) is a global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.
Analysis | Years of Dividend Growth: 38 | Yield: 4.22%
II. Financial Services (17%)
Have you ever had to pay a bank fee, origination point on a loan, or have you ever filed an insurance claim and were not satisfied with the amount of money you received? Financial stocks are cash cows – they generate large cash flows with minimal capital and ongoing expenses. Historically, these have been some of the best dividend growth stocks, at least until the industry became overly aggressive and made bad operating and investing decisions. Here are several financial companies that survived the last downturn:
Eaton Vance Corp. (EV) is a Boston-based holding company that is primarily engaged in investment management.
Years of Dividend Growth: 30 | Yield: 2.23%
T. Rowe Price Group Inc. (TROW) operates one of the largest no-load mutual fund complexes in the United States.
Analysis | Years of Dividend Growth: 30 | Yield: 2.30%
Chubb Corporation (CB) is one of the largest U.S. property-casualty insurers, Chubb has carved out a number of niches, including high-end personal lines and specialty liability lines coverage.
Years of Dividend Growth: 46 | Yield: 2.86%
Harleysville Group Inc. (HGIC) is a regional holding company for property and casualty insurance companies that operates in 32 states, primarily in the eastern half of the U.S.
Analysis | Years of Dividend Growth: 23 | Yield: 4.29%
Cincinnati Financial Corp. (CINF) markets primarily property and casualty coverage; it also conducts life insurance and asset management operations.
Analysis | Years of Dividend Growth: 50 | Yield: 5.92%
III. Industrial Materials (18%)
Companies classified as industrial materials are those engaged in the manufacturing or production of machinery, raw materials or component parts for use or consumption by other industries or firms. These companies don’t make the consumer goods, but they make the machinery and supply the raw materials that are used to manufacture them. Many of these companies are mature with established markets, strong customer relationships and often hold an exclusive right to their proprietary manufacturing process. Below are some companies in the industrial materials sector:
United Technologies Corp. (UTX) is an aerospace-industrial conglomerate with a portfolio including Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products.
Analysis | Years of Dividend Growth: 18 | Yield: 2.55%
Dover Corporation Corp. (DOV) manufactures a broad range of specialized industrial products and sophisticated manufacturing equipment.
Years of Dividend Growth: 55 | Yield: 2.42%
Emerson Electric (EMR) primarily makes backup power equipment for telecom and Internet providers and users, climate control components, and electric motors.
Years of Dividend Growth: 53 | Yield: 2.95%
Nucor Corporation (NUE) is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.
Analysis | Years of Dividend Growth: 37 | Yield: 3.73%
RPM International Inc. (RPM) makes specialty coatings and products for the structural waterproofing and corrosion control markets, as well as products for the consumer, do-it-yourself and hobby markets.
Analysis | Years of Dividend Growth: 37 | Yield: 4.60%
It is no surprise the above three sectors carry the highest allocation in my income portfolio. To keep my asset allocation balanced, I must overweight other sectors in my non-income portfolios. In the same way that too many deserts will expose you to unnecessary health risks, being over-allocated in any sector put your portfolio at risk.
Full Disclosure: Long CL, CINF, PG, KO, KMB, HGIC, CINF, UTX, EMR, NUE. See a list of all my income holdings here.
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