BERKO: Two steady companies good for the long haul
Dear Mr. Berko:
We just came into a windfall of $14,000 and asked a broker what we should invest our money in. We told him that we are both 40 and have good jobs, but that we want to save and invest for our retirement, and that this is very important to us. The broker recommended that we purchase equal amounts of Clorox and Johnson and Johnson, that we reinvest the dividends every quarter, and that we forget about both stocks until we’re ready to collect our retirement income. Please give us your valued opinion.
N.P., Joliet, Ill.
Dear N.P.:
I hope the good Lord reserves a special place in heaven for that broker, and if I’m fortunate enough to be admitted too, I hope he’ll be kind enough to have dinner with me one evening a month or at least pizza and beer on Thursdays at Luigi’s on the corner of Elm and Main.
Most stockbrokers would sooner recommend annuities or mutual funds than common stocks for two reasons: (1) The commissions are significantly higher, and (2) selecting an annuity or mutual fund requires almost zero brain power, while choosing common stocks requires at least a modicum of intelligence. If you reinvest the dividends, those two issues can be good income friends for the best of your retirement life.
I strongly approve of Clorox Co. (CLX-$65.22), with its $2.40 dividend that yields 3.7 percent. I approve of CLX because management has increased the dividend for the past 30 consecutive years at an average annual increase of 11.6 percent. So if you calculate the next 27 years at an annual dividend increase of just 8 percent, a 100-share purchase that pays dividends of $240 today will grow its dividend to $1,920 when you guys are 67.
And if you reinvest the dividend every quarter for the next 27 years (that’s 108 quarters), your original 100 shares will pay you $3,100 a year. If normal interest rates are 6 percent when you retire, the value of your $6,522 CLX investment should appreciate to $50,000.
I also heartily approve of this broker’s choice of Johnson and Johnson (JNJ-$63.75), whose $2.28 dividend yields 3.6 percent. Like CLX, JNJ has had more than 30 years of consecutive dividend increases averaging 11 percent. A 100-share purchase would pay you $228 in dividends today, but if compounded at 8 percent annually, it would provide you with $18.21 per share, or $1,821, in 27 years. If that money were reinvested for 108 quarters, your dividend income today would grow to $3,000 a year, and your JNJ investment could be worth $50,000.
In essence, an investment of $13,000 today could be worth $100,000 (if one can project that far into the future) and pay you $6,100 in dividend income.
Clorox’s products are on the shelves of every grocer, convenience store and supermarket in the country. They provide CLX with more than $5 billion in revenues and 10 percent net profit margins.
Meanwhile, Johnson and Johnson has more than 30 consecutive years of annual revenue, earnings and dividend growth; superb management; and net profit margins of more than 20 percent.
These two issues make a great beginning for a quality long-term growth and income portfolio.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or email him at malber@adelphia.net. ©2011 Creators.com
Trending News
