We are looking for solid companies that are able to increase their dividends, preferably above inflation rate, each year, which we can buy when they are historically undervalued. Inherently these are defensive companies with sales and profits holding up even in a recession and have strong balance sheets that do not normally depend on huge amounts of debt. Currently, we are focusing on UK companies, but at some stage we also want to buy their Asian and other developing countries’ equivalents. Why, see our recent interview with global value investor Jeffrey Towson.
So, here are some UK examples.
I am a firm believer of the long term up-trend in commodities. Also in a real economic and financial collapse, with ensuing hyper inflation and currency depreciation, prices of gold and several other commodities would go stratospheric. I belief there are a number of undervalued gold miners out there, such as AIM-listed Goldplat which in my view currently represent deep value, but unfortunately it does not pay a dividend (yet).
Instead, we have invested in BHP Billiton (LON:BLT) during the recent sell-off when its share price was nearing historic undervalue levels. Comfortingly, during the last 14 years, BHP has been paying dividends during 12 years including 9 when it increased its dividends by more than 7.5%.
Supermarkets are seen as an obvious defensive sector in tough times. Food sales provide defensive characteristics. Also, the current supermarket ‘price’ war underlines the importance of market share and pricing power. Earlier this year we invested in Tesco (LON:TSCO) - whose UK market share is nearly double that of Sainsbury and Morrisons. Long term, I expect major growth for Tesco to come from its expanding Far Eastern activities which in time will boost its dividends. Also remember Tesco is one of only very few companies listed in London which have been paying increasing dividends for more than 25 years. I like that continuity. Also, while starting from a low base dividend, Tesco has increased its dividend by 7.5% or more in 20 of the last 22 years. Value investor Warren Buffett is a long term investor, having only recently added more into his Berkshire’s holdings.
Another angle on necessary recession expenditure are consumer-staples manufacturers Reckitt Benckiser and Unilever (LON:ULVR) . Both have…
Steven Dotsch - Managing editor - http://www.dividend-income-investor.com - Guide to Dividend Investing, at: http://www.dividend-income-investor.com/guide-to-dividend-investing/ - Dividend Value Profiles, at: http://www.dividend-income-investor.com/british-american-tobacco/