Own Solid Companies in Troubling Times

This past week has been fairly brutal to stocks as the situation in Syria deteriorated and American saber-rattling suggested that a military intervention may be right around the corner. In troubling times like these, it's tough to stay invested and keep money at risk in the market.

The real-money Inflation-Protected Income Growth portfolio fell right along with the market since last week's update. Still, that portfolio is designed in a way that lets it stay invested no matter how the market moves, as long as the companies that it owns continue to operate in the way that made them worth buying in the first place.

How to keep on keeping on

To earn a spot in the portfolio, the companies behind each stock had to:

  • Pay dividends, have a history of increasing their dividends, and look capable of continuing to increase those dividends;
  • Appear reasonably to cheaply valued by some fundamentally focused valuation technique;
  • Have decent balance sheets that can help protect them from inevitable slip-ups; and
  • Fit with the rest of the portfolio reasonably well from a diversification perspective.

Those company fundamentals don't change simply because the market is worried about Syria or whatever the next crisis will be. That doesn't mean the iPIG portfolio is immune to market realities or the Syria situation, but it does mean that buy and sell decisions are based on company fundamentals rather than market gyrations. Indeed, the Syria situation is directly affecting the corporate reality of at least one iPIG pick. Generic pharmaceutical maker Teva Pharmaceuticals (NYSE: TEVA  ) is headquartered in Israel, and increases in Middle East tension automatically adds risk. This particular situation has additional risk as Iran has threatened to retaliate against Israel if the U.S. attacks Syria. Teva's shares have been dropping for a few weeks as the situation escalates.

It's all about the cold, hard cash
While the news can move stock prices in the short run, over time fundamental business performance drives investing returns. And when it comes to returns for investors, nothing quite compares to the feel of cold, hard cash hitting the brokerage account. Several iPIG picks are ready to pay their owners cash dividends for the risks they're taking in owning those stocks. In part because the holiday-shortened week compressed payment schedules, a lot of it happens this Tuesday.

On Tuesday, supplemental insurance giant Aflac (NYSE: AFL  ) will pay its owners $0.35 per share for the fourth consecutive quarter. If it keeps with its recent trends, investors (including the iPIG portfolio) could expect to see a raise as soon as its next payment. Also on Tuesday, staple foods maker J.M. Smucker (NYSE: SJM  ) will pay its owners a $0.58 dividend, its first since its recent dividend increase. Smucker's raise for its shareholders exemplifies exactly the sort of investor-oriented behavior that made the company worth buying for the iPIG portfolio in the first place. Joining the dividend party, banking giant Wells Fargo (NYSE: WFC  ) hands its owners $0.30 per share on Tuesday, its second at that level since resuming dividend increases after the recent financial meltdown. Wells Fargo was among the fastest major banks to recover its dividends since the crisis, showcasing its financial strength.

Not to be outdone, Teva is also paying its dividend on Tuesday, handing its U.S.-based owners a payment that starts around $0.32 per ADR for the third consecutive quarter. Because the company is based in Israel, however, US investors will see about a 15% haircut from the Israeli withholding tax. Still, the fact that the company continues to make its dividend payment in spite of potentially being in the crosshairs of the Syrian conflict showcases just how committed it is to its shareholders. And finally, delivering consistent income for its shareholders along with those famous brown trucks, United Parcel Service (NYSE: UPS  ) is also expected to pay its dividend this week. The company's $0.62-per-share quarterly payment marks its third at that level

Solid companies delivering real cash
Those dividends, paid even during a period of increased geopolitical turmoil, provide key signals of strength from the companies that pay them. That signal -- plus the cold, hard cash itself -- help the iPIG portfolio stay invested even as Middle East tensions threaten to flare up again.Put together an entire portfolio based on companies like that, and you wind up with something like the table below, which shows a snapshot of the iPIG portfolio as of last Friday's close:

Company Name

Purchase Date

Total Investment (Including Commissions)

Current Value
Aug. 30, 2013

Current Yield
Aug. 30, 2013

United Technologies 

12/10/2012

$1,464.82

$1,801.80

2.14%

Teva Pharmaceutical

12/12/2012

$1,519.40

$1,452.36

3.15%

J.M. Smucker

12/13/2012

$1,483.45

$1,804.38

2.19%

Genuine Parts 

12/21/2012

$1,476.47

$1,771.23

2.79%

Mine Safety Appliances 

12/21/2012

$1,504.96

$1,732.68

2.49%

Microsoft 

12/26/2012

$1,499.15

$1,837.00

2.75%

Hasbro 

12/28/2012

$1,520.60

$1,959.94

3.51%

NV Energy 

12/31/2012

$1,504.72

$1,969.80

3.24%

United Parcel Service

1/2/2013

$1,524.00

$1,711.60

2.90%

Walgreen 

1/4/2013

$1,501.80

$1,922.80

2.62%

Texas Instruments 

1/7/2013

$1,515.70

$1,795.40

2.93%

Union Pacific 

1/22/2013

$805.42

$921.24

2.06%

CSX 

1/22/2013

$712.50

$836.74

2.44%

McDonald's

1/24/2013

$1,499.64

$1,509.76

3.26%

Becton, Dickinson 

1/31/2013

$1,518.64

$1,752.84

2.03%

Aflac

2/5/2013

$1,466.35

$1,560.33

2.42%

Air Products & Chemicals 

2/11/2013

$1,510.99

$1,736.38

2.78%

Raytheon 

2/22/2013

$1,473.91

$2,036.07

2.92%

Emerson Electric 

4/3/2013

$1,548.12

$1,690.36

2.72%

Wells Fargo

5/30/2013

$1,525.48

$1,519.96

2.92%

Kinder Morgan 

6/21/2013

$1,518.37

$1,593.06

4.22%

Cash

 

 

$345.09

 

Total Portfolio

 

 

$35,260.82

 

Data from the iPIG portfolio's brokerage account as of Aug. 30, 2013.

To follow the iPIG portfolio as buy and sell decisions are made, watch Chuck's article feed by clicking here. To join The Motley Fool's free discussion board dedicated to the iPIG portfolio, simply click here.

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Read/Post Comments (3) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 06, 2013, at 2:13 AM, gr8twhtebuffalo wrote:

    I just started a project similar to this, I'll follow!

  • Report this Comment On September 06, 2013, at 8:30 PM, MCCrockett wrote:

    Isn't there a missing column in your table? A column that shows your yield in terms of your cost basis.

    I find it interesting that the yield based on cost of an investment can be significantly different from the current yield based on current price. At the time that I bought the stocks the current yield was in the 2-3% range but with dividend increases over time the yield based on cost is in the 7-9% range.

  • Report this Comment On September 07, 2013, at 9:45 PM, TMFBigFrog wrote:

    Hi greenbear28 --

    Welcome, and good luck!!!

    Hi MCCrockett --

    "Yield on Cost" is a tough metric to work with in one of these review articles, because it's the kind of metric that needs explaining to be useful, and these articles already tend to push the limit on length/readability. I'll see if there's a way to weave it in a future piece, though. Thanks for the suggestion.

    -Chuck

    Inside Value Home Fool

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