A monthly dividend portfolio for young or old

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A monthly dividend portfolio for young or old
BY john defeo,
TheStreet.com
© 1996-2011 TheStreet.com Inc. All rights reserved.
TheStreet.com — 11/11/11
NEW YORK -- For some stock market participants, the term "dividend investing" is redundant. The logic: Of course an investment should pay dividends, otherwise, it's speculation.

The father of value investing might have agreed.

In The Intelligent Investor, Benjamin Graham outlined four rules for building a defensive portfolio of common stocks:

1. Diversify -- 10 stocks minimum, 30 stocks maximum.

2. Each company should be large, prominent and conservatively financed.

3. Each company should have a long record of continuous dividend payments.

4. The price paid for each should be reasonable in relation to its average earnings for the last five years or longer.

Regarding points two and three, the S&P Dividend Aristocrats -- an illustrious group of companies that have raised dividends for 25 years or more -- provide an excellent first screen for stock ideas.

There are no guarantees in life, but when it comes to reliable dividends, the Aristocrats are as close to a sure thing as you can find. And if you look at each of these companies' payout records, you can build a diversified portfolio that pays monthly dividends (with reasonable certainty).

For retired investors relying on investment income, monthly dividends can add stability to your finances.

For young investors who reinvest dividends, spreading your reinvestment over each month (rather than every third month) can assist a dollar-cost averaging program especially during periods when individual stock performance has a high correlation to market performance.

The following 12 stocks, when held together, form a reasonably diverse portfolio. The stock market holds few bargains these days, but with regard to valuation, the majority of these stocks can be purchased at as fair a price as the S&P 500 index (.SPX  
   
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).

That said, one of these issues -- VF Corp. (VFC  
   
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) -- exceeds Benjamin Graham's valuation threshhold of 25 times five-year average earnings. Purists, take note.

As always, model portfolios should not be treated as gospel; rather, use them as a starting point for your own research. Similarly, all investors should apply their own valuation criteria to determine what constitutes a "fair price."





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Abbott Laboratories
Abbott Laboratories (ABT  
   
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) is a global health care company with a product portfolio that includes Pedialite, Myoplex and Ensure. Note: Abbott has recently announced plans to split into two publicly-traded companies.

Dividend Yield: 3.56%

5-Year Avg. Price/Earnings Ratio: 20.42

5-Year (Annualized) Dividend Growth Rate: 8.20%


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C.R. Bard
C.R. Bard (BCR  
   
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) is a global developer, manufacturer and marketer of medical technologies.

Dividend Yield: 0.87%

5-Year Avg. Price/Earnings Ratio: 18.18

5-Year (Annualized) Dividend Growth Rate: 5.33%


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Clorox
Clorox (CLX  
   
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) is a leader in the household products industry with a product line-up that includes Clorox, Brita and Armor-All.

Dividend Yield: 3.67%

5-Year Avg. Price/Earnings Ratio: 16.21

5-Year (Annualized) Dividend Growth Rate: 12.60%


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Procter & Gamble
Procter & Gamble (PG  
   
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) is a global consumer product company with a portfolio of brands that includes Pampers, Tide and Gillette.

Dividend Yield: 3.32%

5-Year Avg. Price/Earnings Ratio: 14.64

5-Year (Annualized) Dividend Growth Rate: 9.33%


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3M
3M (MMM  
   
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) is a conglomerate with a consumer product portfolio that includes Post-It and Thinsulate.

Dividend Yield: 2.74%

5-Year Avg. Price/Earnings Ratio: 15.06

5-Year (Annualized) Dividend Growth Rate: 2.68%


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ADP
ADP (ADP  
   
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) offers a variety of human resource (HR), payroll, tax and benefits administration solutions.

Dividend Yield: 2.81%

5-Year Avg. Price/Earnings Ratio: 20.26

5-Year (Annualized) Dividend Growth Rate: 14.22%


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Brown-Forman
Brown-Forman (BF/A  
   
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) is a producer and marketer of wine and spirits. The company's notable brands include Jack Daniel's, Southern Comfort and Korbel.

Dividend Yield: 1.75%

5-Year Avg. Price/Earnings Ratio: 23.34

5-Year (Annualized) Dividend Growth Rate: 6.04%


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Exxon Mobil
Exxon Mobil (XOM  
   
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) is the parent of Esso (ESSZF  
   
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), Mobil and ExxonMobil companies around the world.

Dividend Yield: 2.39%

5-Year Avg. Price/Earnings Ratio: 10.77

5-Year (Annualized) Dividend Growth Rate: 6.33%


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Johnson & Johnson
Johnson & Johnson (JNJ  
   
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) is a diversified health care company with consumer products that include Band-Aid, Listerine and Tylenol.

Dividend Yield: 3.56%

5-Year Avg. Price/Earnings Ratio: 14.55

5-Year (Annualized) Dividend Growth Rate: 7.64%


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Kimberly Clark
Kimberly Clark (KMB  
   
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) is a leader in personal care products -- popular brands include Kleenex, Kotex and Huggies.

Dividend Yield: 3.97%

5-Year Avg. Price/Earnings Ratio: 15.88

5-Year (Annualized) Dividend Growth Rate: 6.14%


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Sherwin Williams
Sherwin Williams (SHW  
   
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) is a coatings manufacturer -- notable consumer brands include Krylon and Dutch Boy.

Dividend Yield: 1.70%

5-Year Avg. Price/Earnings Ratio: 17.36

5-Year (Annualized) Dividend Growth Rate: 7.57%


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V.F. Corporation
VF Corp. (VFC  
   
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) is the parent company of several apparel brands including Timberland, Jansport and Wrangler.

Dividend Yield: 2.17%

5-Year Avg. Price/Earnings Ratio: 26.41

5-Year (Annualized) Dividend Growth Rate: 4.61%


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This portfolio, equally-weighted, offers a dividend yield of 2.71%; the S&P 500 index currently yields 2.03%.


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