Fom a strategic standpoint, we have taken a defensive position in the portfolio. Economies have slowed down in both China and in the United States. It is at a near halt in Europe. While you could go to cash, cash pays nothing. We prefer to see investors in high quality stocks that should continue to grow and pay dividends.
If the world were to “go to heck in a hand basket,” we feel the last man would put his dollar in a machine to buy a Pepsi. We believe people will eat their last meal out at McDonald’s. Thus, even in an economic slowdown, we want to be in companies that should continue to generate a net worth.
While we have made our portfolio more domestic oriented, we have not pulled the plug on international exposure. We have concentrated on increasing the dividend yields. We reduced the weight in Industrials and increased it in Consumer Staples. We have not cut back in Consumer Discretionary by much, but we have chosen more defensive positions in Aaron’s Inc. (NYSE: AAN) and Advance Auto Parts, Inc (NYSE: AAP). As times get tight, people may choose to rent their furniture and fix their own cars.
We have not sought the highest paying dividend stocks, because we would be overweight in utilities along with some of the riskier financials that are paying high dividends. Analysts believe they will not be able to sustain the high dividends. We want to have dividend paying stocks that have earnings growth. We have not compromised our quality criteria. We seek stocks with an earnings growth plus dividend of at least 12%. We prefer to choose companies that pay a 2% dividend today, but in 10 years are able to pay between 7% and 9% on your original purchase price.
We seek quality stocks because we want to be protected from inflation. It will eventually turn around, and we do not want to see 30-year money tied up in a Treasury that pays 2.5%. We believe that between 4% and 6% inflation is reasonable when the economy turns around.
The Street might be calling for another round of quantitative easing, but we feel it will not do much as the banks have liquidity. We believe everything is based on fiscal policy. We suggest that we need to cut the deficit and keep tax rates where they are.
Other stocks we like include the “sin stocks” of Altria Group, Inc. (NYSE: MO) and British American Tobacco (NYSE: BTI). We also added Lorillard, Inc. (NYSE: LO) to the income portfolios. Tobacco companies have been quite resilient throughout the recession. Altria’s cash flow is strong, and it continues to pay a good dividend.
Perhaps surprisingly, we have not cut Healthcare, but actually added to it. We feel there are some high quality names that are not exposed to the health care reform, such as, Thermo Fisher Scientific, Inc. (NYSE: TMO), which sells lab technology to hospitals. We believe as hospitals are paid, they will invest in their equipment. Abbott Laboratories (NYSE: ABT) is another name we like.
In Industrials, we still own The Boeing Company, (NYSE: BA) and Norfolk Southern Corp (NYSE: NSC). If you were to speculate, some of the defense stocks may pay off well; however, it will likely be a bumpy road. The concern is that if we come to the fiscal cliff and defense gets cut, defense stocks may suffer. However, it is highly unlikely that our country will have no defense spending. Therefore, if you can stomach the difficult short run, defense could be a good place to invest.
At Henssler Financial we believe you should Live Ready, which includes positioning your portfolio to accommodate the changing economy. If you have questions regarding your investment strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
