If you have stocks that have earnings stability and consistent earnings growth, higher margins compared to their peers, and price growth persistence, they’re probably winners.
If you’ve identified winners in your portfolio, hold on to them through thick and thin, and you’ll be immensely rewarded in the long haul. Oh, and, of course, add to them when they are attractively valued.
Earnings Stability & Growth
Aging and growing populations and advances in technology are reasons that the healthcare sector tends to experience stable growth. The juggernaut in the sector, of course, is no other than Johnson & Johnson (NYSE:JNJ), which has a piece of the pie in the different areas of Healthcare with a Pharmaceutical segment (about 41% of sales), Medical Devices segment (27%), and Consumer segment (14%).
J&J’s has experienced adjusted EPS growth every single year since 2000. It’s no wonder the company tends to trade at a premium P/E despite having been estimated to grow EPS by only about 6% per year over the next 3-5 years.
There are many ways to get to a $100,000 Tax-Free Savings Account (TFSA). The way I’m about to discuss is a simple method with below-average risk, which should help you avoid common TFSA mistakes.
Before I get to what to invest in your TFSA, here’s the general idea.
The gist of our strategy to get to a $100,000 TFSA
Firstly, the TFSA is a savings tool before it’s an investment tool. So, you’ve got to put money in regularly to get your TFSA growing.
Secondly, because we can’t use capital losses to offset capital gains in TFSAs, we’re going to take reduced risk in the account. Specifically, we aim to buy quality stocks that have durable profitability — but only when they’re trading at fair or better valuations.
Thirdly, we want to hold largely proven dividend-growth stocks that offer decent dividend yields of 3-5% (at least initially). This is because we’re pretty late in a bull market (more than 10 years in since the low of the last market crash).
The defensive stance will give us a positive return from decent dividends even in a market downturn. The extra capital from the dividends can be reinvested for more shares at such a time.
Fourthly, we’re aiming for long-term returns of 10% per year, which is very reasonable for blue-chip dividend-growth stocks that offer yields in the range of 3-5%.
The U.S. and Canadian stock markets have declined about 8% and 9%, respectively, from their 52-week highs. They’re spooked out from the Halloween month!
Let’s take a step back and be objective. The U.S. market is still about 29% higher than three years ago. The Canadian market? About 12% higher. From five years ago, the U.S. market is 52% higher and the Canadian market is 15% higher.
SPY data by YCharts. The 10-year price action of SPY and TSX:XIU
You get the big picture. The stock markets go up over the long term. Historically, it has always been money-making opportunities to buy quality companies on dips. And this dip is no different if you find great businesses to be attractively priced.
Here are some North American dividend-growth stocks that I find compelling today.
Undervalued Healthcare Stock
AbbVie (NYSE:ABBV) offers a safe 4.7%. Its payout ratio of less than 50% is sustainable.
Since AbbVie was spun off from Abbott Labs (NYSE:ABT) in 2013, it has increased its dividend every year thereafter. Its four-year dividend growth rate is 13.2%. Its trailing 12-month dividend per share is 40% higher than the previous 12 months.
The spooked market has brought AbbVie back into undervalued territory. At less than US$82 per share, it trades at a blended P/E of about 11. Analysts estimate the company will grow its earnings per share by at least 12% per year for the next three to five years. Read More