One of my first clients in January 2003 between he and his wife had 278,000 in their retirement accounts in "assorted" investments and funds.I am going to explain how we combined diversification ,safety, growth ,income and tax efficiency.They planned on retiring at age 65 by the end of 2006 and would need money for retirement for 2007 and on.
The ideal "portfolio" COMBINES Growth ,Dividend Income, Diversification,Safety and Tax efficiency
In the next article I will address all those individually
We took that ALL that money in 2003 and Bought Altria which consisted of Kraft foods Miller Beer and more than 76 different brands that did over 100 million in sales and more than a dozen that have a billion a year in worldwide sales.When looking over the top performing stocks from 1957-2003 with dividends reinvested we notice something interesting
10,000$ with reinvested dividends returned the following
TOP PERFORMING STOCKS 1957-2003
This assumes All dividends are reinvested
Rank
2003 Name
$10,000 grew to
Annual Return
1 Philip Morris $46,264,020 19.75%
2 Abbott Labs $12,813,350 16.51%
3 Bristol-Myers Squibb $12,094,450 16.36%
4 Tootsie Roll Industries $10,909,550 16.11%
5 Pfizer $10,548,230 16.03%
6 Coca-Cola $10,516,460 16.02%
7 Merck $10,034,100 15.90%
8 PepsiCo $8,660,680 15.54%
9 Colgate-Palmolive $7,611,630 15.22%
10 Crane $7,367,960 15.14%
11 H.J. Heinz $6,359,880 14.78%
12 Wrigley $6,038,770 14.65%
13 Fortune Brands $5,800,250 14.55%
14 Kroger $5,467,930 14.41%
15 Schering-Plough $5,370,500 14.36%
16 Procter & Gamble $5,137,520 14.26%
17 Hershey Foods $5,070,010 14.22%
18 Wyeth $4,611,860 13.99%
19 Royal Dutch Petroleum $3,988,370 13.64%
20 General Mills $3,884,250 13.58%
- S&P 500 $1,244,860 10.85%
Altria outperformed EVERY stock by at least 34 MILLION Dollars which I took to be significantly significant . Since 1925 Altria was also the best performer in the S&P in the 78 years prior. Ten thousand dollars with dividends reinvested turned into over 2.50 BILLION dollars which is around 17% compounded annually.In the same timeframe ,smoking in the US declined or stayed equal in all those 78 years.( sound familiar.lol)
The 278,000 dollars bought at a price of about 28.96 per share gave us 9596 shares of Altria.the 1.92 per share in dividends we collected in 3 quarters gave us (1.92X 9596) 18,424.32 which we had at the year end of 2003.In 2004 we collected 2 more divdends totaling 12,963.52 In September of 2004 invested the total dividends plus interest which was about $31900 into more shares of Altria around the price of 45.25 which gave us 705 more shares or 10301 total. The last 2 months of 2004 we had dividends of 1.41 per share which netted us 14524.41.
In 2005 we collected the dividendsof (3.06 X10301)of 31521 which added to the 14524.41 gave us about47,000 with interest. We bought 1086 shares of Anheuser Busch ,which controlled 50% of the beer market in the U.S along with the 2nd ranked Us beer Miller that we owned with our Altria purchase.
In 2005 our total dividends were (10301X 3.06) + (1086X1.03) and added in with our interest was about 33,400 at the end of 2005
In 2006 we didnt buy any stocks either and our total dividends and interest totaled about 72,000
In 2007 our formula found NO other stocks and our dividends and interest at the end of 2007 was 113,576- 33000 WIthdrawn by the clients who retired=80,576
In June of 2008 when the Bud deal was being discussed .They "cashed out too early" by my advice when the ImBev deal was announced and collected only 62 dollars per share.That 67332 dollars combined with the dividends and interst from the end of 2007 and 2008 Minus what was withdrawn as living expenses which totaled about 129,000, was invested into 7127 shares of Altria in October at 18.10 per share which is almost 25% More. than its current price 2 months later
Lets see what that 278,000 dollars turned into after about 58,000 has been withdrawn over the past 2 years:
Annual Dividend Income in 2009 Assuming all dividends stay the same even though the 2 largest companies increased their dividends more than 10%in 2008.
Phillip Morris 9596 shares X 2.16 per share= 20,727.36
Altria 16,723 shares X 1.28 per share= 21,405.44
Kraft 6670 sharesX 1.16 per share= 7737.2
Total Diviedend Income in 2009 if all stay the same 49,870 dollars per year
Total Portfolio Worth based on yesterday's close 828,869.69
Whats ironic is this has been done in a depressed market where over $100,000 was invested in something down almost 25% since it was bought. The overall market since the beginning of 2003 was at a higher level then it is now 5 years later.The total dividends should increase yearly and this portfolio is not only "safe" but tax efficient".The client decides how much they take out the retirement account NOT the government.Please feel freeto ask any question or make comments.peace
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billy,
ReplyDeletecan you tell us what the PE was when you decided to purchase shares in each company?
also, do you remember the ROE for each company at the time of purchase?
did you break out the earnings for MO into MO, KFT, Miller Beer?
aside from MO and PM, do you see any other opportunities today?
thanks! great article.
I know you like consumer products companies-- so what do you think about the "tomato crushers" HNZ and CPB? They are both way off their highs and I think are starting to represent a good put writing opportunity soon. What do you think?
ReplyDeleteSmiley guy the PE and dividend yield for Mo is about what it was in 2003.The ROE is higher NOW because although PM has been spun off so has KFT and Miller which of course are not as profitable as cigarettes
ReplyDeleteExpectingrain:As you know I love consumer goods companies but at these levels NO company has the dividend,earnings safety and overall DOMINANCE as Altria. Look at the list ABOVE .Altria is NOT ONLY at the top but it is 8 TIMES the amount of Heinz.That is statistically significant in my book.Thanks for posting.peace
http://www.billspetrino.com/ is my new place
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