I do not blindly purchase companies, just because I find them to have strong qualitative characteristics. I also want to purchase them at attractive valuations, which provide me with some margin of safety in case my investment thesis is incorrect, and growth does slow down. I am monitoring these companies closely, in order to be quick to capitalize on any significant weakness in stock prices. Companies do not grow in a straight line, and often face roadblocks on their way to greatness. Sometimes the declines are company specific, while other times the declines are based on the overall economic cycle. The companies I am waiting for declines in include:
McCormick & Company (MKC), Incorporated engages in the manufacture, marketing, and distribution of spices, seasoning mixes, condiments, and other flavorful products to retail outlets, food manufacturers, and foodservice businesses. This dividend champion has rewarded shareholders with a dividend increase for 28 years in a row. Over the past decade, earnings per share have increased by 9.20%/year, while dividends were raised by 11.40%/year. Currently, the stock is trading at 22.70 times earnings and yields a very sustainable 2.30%. I initiated a small position in the company at the beginning of the month during the dip, in order to be able to better monitor the progress. Check my analysis of McCormick for more information.
Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. This dividend champion has rewarded shareholders with a dividend increase for 51 years in a row. Over the past decade, earnings per share have increased by 8.90%/year, while dividends were raised by 11.40%/year. Currently, the stock is trading at 25.90 times earnings and yields a very sustainable 2.20%. I have built my position in the company between 2008 and 2012. Check my analysis of Colgate-Palmolive for more information.
Automatic Data Processing, Inc. (ADP), together with its subsidiaries, provides technology-based outsourcing solutions to employers and vehicle retailers and manufacturers worldwide. This dividend champion has rewarded shareholders with a dividend increase for 39 years in a row. Over the past decade, earnings per share have increased by 4.90%/year, while dividends were raised by 13.70%/year. Currently, the stock is trading at 26.10 times earnings and yields a very sustainable 2.50%. I have built my position in the company between 2008 and 2012. Check my analysis of ADP for more information.
Brown-Forman Corporation (BF.B) engages in the manufacturing, bottling, importing, exporting, marketing, and selling alcoholic beverages. This dividend champion has rewarded shareholders with a dividend increase for 30 years in a row. Over the past decade, earnings per share have increased by 10.30%/year, while dividends were raised by 10.20%/year. Currently, the stock is trading at 28.40 times earnings and yields a very sustainable 1.60%. I purchased a small position in the company back in 2010. Check my analysis of Brown-Forman for more information.
The Hershey Company (HSY), together with its subsidiaries, engages in manufacturing, marketing, selling, and distributing various chocolate and confectionery products, pantry items, and gum and mint refreshment products worldwide. This dividend paying company has rewarded shareholders with a dividend increase for 5 years in a row. Over the past decade, earnings per share have increased by 7.10%/year, while dividends were raised by 15.30%/year. The company froze dividends in 2009, which ended its 33 year streak of consecutive dividend increases. Currently, the stock is trading at 29.80 times earnings and yields a very sustainable 1.60%.
While I might sometimes deviate from my entry rules and buy companies that have raised dividends for less than 10 years in a row or have current yields below 2.50%, I try to avoid paying more than 20 times earnings. This is in an effort to avoid overpaying for future growth, that might not materialize. Therefore, the companies listed in the article will most likely be available below 20 times earnings only during the next bear market. The other hurdle that these firms have to clear is whether other companies are priced even better during the next bear market.
Full Disclosure: Long MKC, ADP, CL, BF.B
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