As a dividend growth investor I am constantly looking for new ideas or themes to invest in. Often, we are blinded by the numerous headlines about the day’s trendiest stock and get lost in a sea of information. Well, I for one think that finding great investment themes doesn’t have to be difficult. In fact, it can be down right easy. As you may know, I am a big fan of the consumer staples sector and have a considerable amount of my portfolio invested in that space. I also, am a firm believer of the defensive nature of the consumer staples sector and realize that when times are good or bad people simply cannot go without these staples. And so… I bring to you my investing ideas from my bathroom.
When deciding on what to buy for your dividend growth portfolio you need look no further than your own bathroom. Go ahead, open up that medicine cabinet or drawer and see what products are there. Chances are that in any economy those same products are always there. Think about it… we all brush our teeth, use soap and shampoo in the shower, have some prescription medicine and other first aid products, shave and of course everyone uses the toilet. So what products are in your bathroom?
First up, one the of the classic dividend growth stocks found in many portfolios Johnson & Johnson (JNJ). This health care company needs no introduction as we are all familiar with many of their brands. JNJ operates in three distinct segments Consumer, Pharmaceutical, and Medical Devices and Diagnostics. Some of their top brands include Tylenol, Band-Aid, Listerine, Visine, o.b. Tampon, Neutrogena and many, many other famous brands. JNJ current yields 2.80% with a reasonable PE for the day at 19.18. What makes JNJ really special, as a dividend growth investor, is the fact the company had paid a growing dividend for over 50 years and since 1970 that dividend has grown at a 13.97% annualized rate. Yes, this has been and continues to be a great stock to own.
Next up in our bathroom adventure is The Procter & Gamble Company (PG). Here is another company that needs no introduction and has products that can be found in pretty much every bathroom in the world. Some of those products include, Head & Shoulders, Olay, Pantene, Gillette, Crest, Oral-B among many more. PG is another stalwart among dividend growth investors. PG currently offers a very generous yield of 3.20% which is pretty high among its peers. It’s PE may be little rich for the day at 21.39 but still offers some value even at these prices. PG has a dividend growth history that goes back almost 60 years and has a fair payout ratio of 61.3% which is safe and assures us of future dividend raises going forward. Since 1970, PG had an annualized dividend growth rate of just under 10.00%. As you can see both JNJ and PG have had a very high annual dividend growth rate spanning multiple decades. This is what you want to look for when constructing a dividend growth portfolio.
Staying near the sink in our bathroom we can find Colgate-Palmolive Co. (CL). Another company that needs no introduction. Along with its namesake toothpaste, CL also produces Speed Stick, Softsoap, Irish Spring and much more. CL currently offers a decent yield of 2.20% with a relatively low payout ratio of about 48.3%. The PE of CL is on the high end of spectrum these days at 28.66. You might want to wait on pulling the trigger on this one at these levels. CL also has a very long dividend history spanning over 50 years with a very respectable annualized growth rate of 9.16%. Not too shabby.
We all need to keep our bathroom clean and sparkle fresh right? So why not use some Clorox Company (CLX) products to get that just cleaned smell. Along with its namesake bleach products CLX also produces, Formula 409, Pine-Sol, Tilex and for those occasional drain clogs Liquid-Plumr. Just imagine how many homes worldwide are using these products.
Now I know current shareholders of CLX were not too thrilled with CLX’s recent dividend increase but nonetheless it was an increase and CLX also has a very long and rich dividend growth history going back almost four decades. In fact, going back about 30 years the annualized dividend growth rate is a very respectable 12.43%. The current yield for CLX is a hefty 3.30% with a slightly higher payout ratio than its peers at 68.2%. The PE for CLX is 20.53 which makes it fairly valued in today’s high valuation market.
Our final pit stop on this bathroom trek is with Kimberly-Clark Corporation (KMB). Of course, as we all know every bathroom must be equipped with paper products and KMB delivers with such brands as Kleenex, Scott, Cottonelle, Kotex among many others. KMB currently sports a very healthy 3.00% yield with a modest PE of 19.63 which is a bit high compared to its 5 year average of 16.9 but lower than its peers at 22.1. So I guess KMB with its generous yield might be at fair value in today’s high valuation market. KMB has been raising its dividend for over 40 years and for the last 30 years had an average annualized growth rate of 8.81%. Again, not too shabby.
Clearly all the stocks mentioned here offer a very high and long term annualized growth rate of its dividend which is something you want to look for when following a dividend growth strategy. It’s not so much about current yield as much as long term dividend growth rates. Anytime you have a stock growing a dividend around 10% every year for a few decades makes your dividend income rise much faster.
If you are just starting out I highly recommend you view the everyday products you use in your bathroom. There are, of course, many other companies that can be found in your bathroom. I just wanted to focus on some of my consumer staple core holdings. As you can see constructing a dividend growth portfolio doesn’t have to be difficult. Even if you start with the names mentioned here, JNJ, PG, CL, CLX and KMB you would have started out with a very solid dividend portfolio albeit heavy in one sector. But that’s OK too since it is a very defensive sector. Of course, entry points matter when building out your portfolio so please pay attention to valuations, PE’s, cash flow and recent dividend data such as payout ratios, etc.
Do you hold any bathroom stocks in your portfolio? Let me know.
Disclosure: Long JNJ, PG, CL, CLX, KMB
25 thoughts on “Investing Ideas From My Bathroom”
Kitchens and Bathrooms. Two excellent places to invest in both your house and your stock portfolio.
I couldn’t agree more. As I was saying, I think finding “investment themes” is pretty easy. Just look around and see what people are using, driving, eating, wearing, etc. and you can come up with your own investment theme and buy stocks accordingly. Kitchens and bathrooms, the two most important rooms in a house. Good for real estate and good for stock ideas. Thanks for commenting.
Thats the way to think about investing, DivHut. Im glad you wrote about this – for beginners this can be a valuable lesson in how to think like a long term investor.
I own JNJ and still have PG on my watchlist. However, I am torn between PG and UL. I need to make up my mind sometime about it.
Glad you enjoyed this article. I tend to write for beginners because I want to show in as plain English as possible that investing and dividend growth investing doesn’t have to be difficult. Just follow some basic guidelines, don’t over trade and freak out if a stock you purchased goes in the red, focus on long term dividend income from solid payers and don’t buy into the trendy stock of the day. Just good old reliable companies producing the “stuff” people of Earth use every single day.
By the way, I was in your PG & UL torment about 7 years ago. Both are fine companies with amazing brand power but I chose PG mostly because of its history. I know looking back is never a reason to purchase a stock but, at the time, history, PE and dividend made me sway to PG. Hope this helps.
I have JNJ too! Good to know I’ve got some stocks like you as you seem to know what you’re doing, not like me! ha ha
Thanks for stopping by. JNJ is another long term holding of mine. Though a bit pricey these days compared to its peers and its 5 year PE, JNJ can still churn out great long term dividend returns.
Love all those stocks since I own them all. These consumer staple stocks are not going anywhere for a long time. Slow and steady with their performance. Growth I like cause it predictable unlike 95% of other stocks
That’s exactly why I own them. Great companies producing stuff every one of us use on a daily basis. I always prefer the slow and steady approach with my investments. That’s why I wrote Low Beta Stocks Help Me Sleep At Night. Thanks for stopping by.
Interesting analysis. Warren Buffet says to look at the productivity prospect of a stock instead of seeing the current price. Bathroom is definitely a good way to start to see what kind of items people still buy in time of crisis.
You are correct in the fact that one must look at forward growth prospects for any type investment instead of past or current productivity. However, current performance can help you see how a particular stock is performing relative to its peers and may help you decide is something is currently overvalued or not. Thank you for commenting.
Funny. At first I had an impression of you sitting on the throne in your bathroom and suddenly got struck with an idea of stocks you want to invest in, hehe.
I think it is a good approach anyway to look at products people use on everyday basis and can be sorted as necessities. That’s why a couple years ago, when JNJ was recalling some products and Wall Street was selling JNJ like crazy I was buying (the cheapest lot I bought was for $56 a share and now we are at $100-something a share) and laughing at the stupidity of investors predicting the end of JNJ. Bad I didn’t have more money at that time.
You know a man can get a lot of thinking done in the bathroom 🙂 I think I want to highlight to a lot of newbie investors that finding investment themes is not really that hard. Focus on what you know, see what you use daily, buy only dividend payers from that group and build out your own portfolio.
I remember the JNJ recall problems from a few years ago too. I can assure you I did not even consider selling one share despite all the bad publicity. I have my JNJ at around $63 average. I totally agree with you. Let the Wall Street chatter go on. Just stick with your investment theme and thesis and let everyone else talk. Thanks for stopping by!
I love JNJ and I am a huge fan of PG. I prefer PG to UL, personally.
Thanks for the comment. I agree with you about JNJ and PG. Both are long term holdings of mine. I did have a question about PG or UL several years ago but for whatever reason opted for PG.
Consumer staples are definitely a great place to start building up your portfolio. I noticed a lot of people have been talking UL or PG, personally I own both. UL for hopefully some faster growth due to more emerging market exposure and PG for it’s predictability. I only wish I had purchased more shares of these consumer staples giants earlier in my investing “career”. But I’m ready for the next pullback.
Yup, the classic PG or UL argument never ceases. I faced the same question and know that both make great investments. Personally, I chose PG as I was already heavy in consumer staples and had to draw a line somewhere. Still, UN/UL is in the back of my mind and I may pull the trigger on it someday. Thanks for stopping by.
Great list and I’m trying to build a foundation around several of these companies. What are your thoughts about “in the kitchen”? I’m looking to add KRFT to my portfolio because I feel they have a solid footprint in most kitchens and pantries.
KRFT is a great choice, nice current high yield though it will have lower future growth. It is a great steady company but not a high grower. If you are looking for growth look to MDLZ.
Yes these are all great stocks to own. Prices might be high right now, but on dips I would love to add to them. How do you feel about General Mills, they are constantly evolving with new brands?
GIS is a great long term investment and has been with me for many years. While I like GIS very much because of its generous yield (over 3.0%), low payout ratio (under 60% so future increases are likely) and nice history of dividend increases (10+ years) I have to say that at current valuations it may seem a bit overpriced. It’s 5 year PE average is around 16 and currently it’s close to 20. While in line with its peers, and these days everything seems overvalued, I would just be cautious at these levels. It does seem difficult to find good value these days with many stocks out there. Even with great companies like GIS. Thanks for stopping by.