There's no perfect time to invest, because people tend to let emotions push them in the wrong direction at the worst moment. So I have long ignored the market and focused instead on buying companies I think are well-run and when they have historically generous dividend yields. Then I sit back and collect my checks while making sure management stays the course.
That approach got me into Procter & Gamble (PG +1.22%), W.P. Carey (WPC +0.00%), and Southern Company (SO +0.43%) when they were much cheaper than they are today. Now, I'm planning to hang on through thick and thin.
1. Turning things around
When I bought Procter & Gamble it was in the middle of a massive corporate overhaul following a long period of weak growth. The yield was historically high despite the fact that the company was a Dividend King, which is what grabbed my attention. I bought it thinking that management would, eventually, figure out how to right this ship at this iconic consumer staples giant. I was correct.
Image source: Getty Images.
Today, Procter & Gamble is at the top of its game, actually managing to raise prices, increase volume, and get customers to trade up to higher-priced goods, despite inflationary fears. Organic sales growth in the fiscal third quarter was a huge 10%. I'm pleased to see the strong performance and believe it shows what the company is capable of, thanks to its collection of iconic brands, like Pampers, Old Spice, and Gillette.
I don't expect this string of good luck to last forever, though, and I'm bracing for hard times to come. But what I won't be doing is selling. In fact, when there's a drop in the stock price I might actually be tempted to buy some more.
NYSE: PG
Key Data Points
2. Spreading the portfolio around
Diversification is good for your portfolio. It's also good for the portfolios of real estate investment trusts (REITs) like W.P. Carey. The landlord's properties span the globe with roughly 63% of its rents coming from the United States and the rest from abroad, mostly Europe. It owns industrials (26% of rent), warehouses (24%), offices (19%), retail properties (18%), and self-storage assets (5%) with a sizable "other" sector rounding things out. It is easily one of the most diversified REITs you can buy.
NYSE: WPC
Key Data Points
W.P. Carey generally buys assets from companies and then leases them right back, using the net lease approach. That means that the tenant is responsible for most of the property's operating costs. With a large enough portfolio -- W.P. Carey owns over 1,300 properties -- this is a very low-risk investment tactic.
But what really sets this REIT apart is its willingness to invest opportunistically. For example, early in the pandemic it announced plans to invest in industrial and warehouse assets. As another example, most of its retail investment is in Europe, because management believes the U.S. retail space is oversaturated. This type of vision has allowed W.P. Carey to increase its dividend every year since its initial public offering (IPO) in 1998.
The company's fortunes in any given year will wax and wane, but given its strong core approach, I'm unlikely to sell this REIT. In fact, like Procter & Gamble, weakness in the stock would probably lead me to add to my position.
3. Still plugging along
Southern Company is a large U.S. utility that has increased its dividend annually for more than two decades. But what's even more interesting is that it hasn't cut its dividend in over 75 years. That's a reliable dividend stock.
I bought it when investors were worried about a big nuclear power project that wasn't going particularly well. It still isn't going all that well and there's another year or two before both of the plants under construction will be up and running. That said, investors are more focused on safety right now, and the stock has risen smartly from where I bought it.
NYSE: SO
Key Data Points
The thing about Southern's nuclear project is that it is playing right into the long-term clean energy trend. Nuclear power doesn't emit carbon into the atmosphere. This isn't the utility's only portfolio shift; it has also been moving away from coal and toward cleaner alternatives, including natural gas, solar, and wind power. But once the nuclear project is complete, it will have a strong clean energy asset from which to build for the future as it looks to get even greener.
That said, this is an example of how management keeps its eye not on tomorrow, but on the future it will face decades from today. I'm not going to sell this long-term dividend payer just as it's about to turn this important corner, even if the price pulls back.
Nothing is perfect
Stocks don't go up or down in a straight line. I focus on trying to find great companies that are generally on an upward trajectory, but that have temporarily become out of favor for some reason. Then I hold on, making sure that nothing material changes in the company's approach while I collect my dividends.
Procter & Gamble, W.P. Carey, and Southern Company are all stocks that I added to my portfolio when their yields were historically high and now I'm letting them run. If they sell off, I'll probably consider adding to them.
