Wishlist (October 14, 2012)

As we enter into Q4 of 2012, I must say that I am very pleased with the progress that the dividend portfolio has made so far this year. One of my original goals was to establish a total portfolio value of $60,000 by the end of 2012. If the market continues to hold steady, I should be able to achieve this result by the end of December.

In the future, I think it will make more sense to set a dividends received/month goal, as opposed to solely focusing on total portfolio value. In any case, it would still be satisfying to fulfill this 2012 target, as it let’s me know that I stayed on track and carried through with a plan for the entire year. After all, maintaining consistency is the hardest thing to do with any long-term endeavor.

Since the portfolio is gradually expanding and molding into shape, I thought now would be a good time to introduce a Wishlist segment into the Categories list. In the past, I’ve provided Watchlists for stocks that were on my radar due to attractive valuations. The purpose of the Wishlist is to give readers more insight and visibility into my long term strategy. The wishlist comprises of stocks that I would like to own that are not yet represented in the portfolio.

Core Holdings:
As mentioned here, I would like to build a Core around the following companies:

  • Chevron (CVX); [25 years]
  • Johnson and Johnson (JNJ); [50 years]
  • Procter and Gamble (PG); [56 years]
  • Coca Cola (KO); [50 years]
  • McDonald’s (MCD); [36 years]

JNJ and MCD are highlighted in bold since they appear on the Wishlist, and are not yet owned. For Core Holdings, I’m focused on adding large-caps with a strong history of increasing dividends for many consecutive years (25+). I also look for companies that dominate their respective industries, have minimal debt, strong cash flow, and are mostly resistant to economic downturns.

Defensive Plays:
Core Holdings are the backbone of the portfolio. They will provide dividend growth, share price appreciation, and low market volatility. Since preservation of the income stream is the single most important criteria for the portfolio, I want to add many more high quality companies that have a proven track record of consistent, long-term dividend growth. These defensive stocks will also be low beta and provide a smoothing effect to offset the general volatility and ripple associated with the overall market:

  • Abbott Laboratories (ABT); [40 years]
  • General Mills (GIS); [9 years]
  • Kimberly Clark (KMB); [40 years]
  • AT&T (T); [28 years]

Entry into New Industries:
It is also important to have a portfolio that is well diversified across many different industries. In general, I like: consumers (both defensive and cyclical), energy and oil (integrated, mid-streams, etc.), and industrials (equipment, machinery, railroads, etc.). However, I already own many stocks in those fields. I would like to add some new ones, such as a few financials. Healthcare and healthcare REIT’s are also on my list for new entry. I’m not as interested in residential REIT’s, as I would prefer to focus, instead, on acquiring individual residential properties (home ownership). These holdings will help add to sectors where I am currently underweight:

  • Aflac (AFL); [29 years]
  • Automatic Data Processing (ADP); [37 years]
  • Wells Fargo (WFC)
  • LTC Properties (LTC)
  • Omega Healthcare (OHI)
  • Realty Income (O)

Same Industry, More Holdings:
I like the following for long-term growth and high dividend yield. We need some punch in the lineup as well, so these will complement the other oil/natural gas/pipline holdings already contained in the portfolio:

  • Linn Co (LNCO)
  • Enterprise Products (EPD)

On the Bench:
These are companies I really like, but those who probably won’t be prioritized as high on the shopping list. Should a major correction occur, however, I would definitely add:

  • Genuine Parts (GPC); [56 years]
  • Union Pacific (UNP)
  • 3M (MMM); [54 years]


So, there is my roadmap. Since I currently own 20 stocks, the total portfolio size would grow to 37 if I were to initiate a position with each company on the wishlist. This would probably be at the upper limit of what I would want to carry. Of course, I may change my mind in the future, and add or eliminate stocks as the journey progresses.

Outlining this path gives me direction of where I want to go. I am looking forward to adding these positions to the Early Financial Independence Fund. I’ll just have to be patient and wait for the right opportunity to present itself. And so the journey continues…

 

What companies are on your wishlist? How many holdings do you want to ultimately carry? Any gems that I have overlooked? Recommendations?

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FI Fighter,

I have GPC and GIS on my list for a couple of high quality companies that I haven’t invested in yet. Both are very solid. MMM is great too.

I need to look further into REIT’s. It seems they, as a group, have had quite a run this year, but of course few stocks haven’t. It looks like O is a winner here, but I’ve also looked at SNH from time to time. High yield and I like the baby boomer angle.

I still really like MCD at current levels, but if it dips below $90 again…I’m definitely buying.

I think EMR is attractive right now. As is VOD. AFL too.

Banks are interesting. I thought about initiating twin positions in WFC and USB a while back and picked SBSI instead. SBSI is solid, but WFC and USB have been on tears. Certainly hard to bet against both Warren Buffett and TBTF!

I’ll be interested to see what you decide to buy in November! Good luck on hitting $60k by the end of the year!

Best wishes.

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