14 Smart Blue-Chip Buys I Just Made For My Retirement Portfolio In This Stupid Market

14 Smart Blue-Chip Buys I Just Made For My Retirement Portfolio In This Stupid Market

In this dangerous and some would say downright stupid market, it’s important to make reasonable and prudent decisions with every investment we make.

(Source: imgflip)

Or to put another way, I strive for “consistently not stupid” decisions with my hard-earned discretionary savings, not just for my retirement portfolio, but for all five portfolios I run for Dividend Kings.



Thus for all money I won’t need for 5+ years I make decisions based on three principal criteria, that are the basis for the new Dividend Kings Investment Decision Tool and what drives all our portfolio buys.

Basically, what I’ve learned from 24 years of investing and over six as a professional analyst, and what has been confirmed by my Dividend Kings co-Founders Brad Thomas and Chuck Carnevale (over $150 million in assets under management) are that to achieve your long-term financial goals

  1. first, you must not lose money
  2. next, you need to get your money back (reducing the risk of ultimately losing money in the future)
  3. finally, you need to earn sufficient absolute and risk-adjusted returns on your money

So here is the way I decide whether or not a potential investment decision is reasonable and prudent, using the S&P 500, most people’s default alternative, as the benchmark.

PointsMeaningPreservation Of CapitalReturn Of Capital

Return On Capital

1PoorBankruptcy risk 52+% (C-rated company equivalent)Zero dividend capital return over five years

Probability-Weighted Return is zero or negative

2Below-AverageBankruptcy risk 13% to 52% (BB-rated company equivalent)0.1 to 0.5X S&P dividend capital return over 5-years

Probability-Weighted Return is 0.1 to 0.5X S&P PWR

3AverageBankruptcy Risk 7.5% to 10% (BBB- or BBB rated company equivalent)0.6 to 1.9X S&P dividend capital return over 5-years

Probability-Weighted Return is 0.6 to 1.9X S&P PWR

4Above-AverageBankruptcy Risk 5% (BBB+ rated company equivalent)2.0 to 2.9X S&P dividend capital return over 5-years

Probability-Weighted Return is 2.0 to 2.9X S&P PWR

5ExcellentBankruptcy Risk 2.5% or less (A-rated company equivalent)3+X S&P dividend capital return over 5-years

Probability-Weighted Return is 3+X S&P PWR

(Source: Dividend Kings Investment Decision Tool)

The S&P 500 is a “risk-free” investment in that, barring a permanent collapse of the global economy, if you hold long enough, you can’t lose money.

Corporate America can’t go bankrupt outside of an apocalypse and if that were to happen no portfolio strategy is going to matter.

5-Year Estimated Dividend Return On S&P 500

S&P 500
Current Yield1.95%
Probability-Weighted Long-Term Analyst Growth Consensus6.4%
Yield On Cost in 5-Years2.7%
Average 5-Year Consensus Yield2.3%
5-Year Estimated Dividend Return12%

(Source: Dividend Kings Investment Decision Tool)

Over the next five years, the broader market is likely to generate about a 12% dividend return on your investment, which isn’t very much.

What about total return potential from the overvalued market?

S&P 500 Valuation Profile

YearEPS ConsensusYOY GrowthForward PEBlended PEOvervaluation (Forward PE)Overvaluation (Blended PE)Consensus CAGR Return Potential By End of That YearUpside Potential By End of That Year
2020$125.48-23%24.321.149%24%-47.9%-28.8%
2021$163.9930%18.621.114%24%-4.2%-6.3%
2022$186.5813%16.321.10%24%3.5%9.1%

(Source: Brian Gilmartin, Reuters’/Refinitiv, FactSet Research, F.A.S.T Graphs)

Through 2021 the consensus return potential on the broader market is negative, becoming slightly positive by the end of 2022.

By 2025 the consensus return potential on the broader market becomes better, though still below the 7% to 9% CAGR stocks have historically delivered.

S&P 500 2025 Consensus Return Potential

(Source: F.A.S.T Graphs, FactSet Research)

Now it’s important to understand the role of probabilities and time when estimating future investment returns.

While over the long-term valuations and fundamentals drive 90% to 91% of returns, for up to six years sentiment, i.e. “animal spirits” can determine the majority of returns.

This is why bubbles and bear markets can last for many years. The longest I’ve seen any individual company remain under or overvalued is 7 years.

What this means is that just because stocks are 24% to 49% historically overvalued, we shouldn’t become market timers.

Not even the professionals, backed by algorithms running on supercomputers, fed by fiber-optic lines and programmed by PhDs can consistently time the market well.

Retail investors do an even worse job as decades of market data make very clear.

(Source: Dalbar)

No matter the time frame you look at, whether stock, bond, or mixed funds, regular investors (and even professionals) are terrible market timers.

S&P 500 Mid-Range Probability-Weighted Calculator

S&P 500
5-Year Consensus Annualized Total Return Potential6.05%
Conservative Margin Of Error Adjusted Annualized Total Return Potential3.09%
Bullish Margin Of Error Adjusted Annualized Total Return Potential9.14%
Conservative Probability-Weighted Expected Annualized Total Return1.85%
Bullish Probability-Weighted Expected Annualized Total Return7.31%
Mid-Range Probability-Weighted Expected Annualized Total Return Potential5%

(Source: Dividend Kings Investment Decision Tool)

I adjust for the 30% 5-year margin of error for the Gordon Dividend Growth Model (which most asset managers use).

40% of the time the market is either in a bear market or a bubble, and we can’t know what market sentiment will be in five years.

I also adjust for the 20% to 40% probability that analysts will be completely wrong about how fast earnings will grow, which is how I estimate about 5% CAGR expected returns from the broader market.

The probabilistic and long-term statistical nature of Wall Street is why, as hard as it might be, avoiding overtrading is one of the cornerstones of long-term financial success.

Which is why the Dividend Kings motto is “quality first and prudent valuation & risk management always.”

So let me show you the 14 reasonable and prudent long-term investment decisions I recently made for my retirement portfolio, where I keep 100% of my life savings.

14 Smart Blue-Chip Deals I Just Made For My Retirement Portfolio

Why Did I buy these 11 blue-chips 14 times over the last two weeks?

The detailed explanations would require 2.5 hours of Dividend Kings Daily Blue-Chip Deal Videos, which are a brand new exclusive feature we offer our members.

But let me give you a brief synopsis by summarizing the aggregate fundamentals of these world-class companies.

Fundamental Stats On These 11 Low-Volatility Blue-Chips

  • Average quality score: 9.5/11 Blue-chip quality vs. 9.6 average dividend aristocrat
  • Average dividend safety score: 4.8/5 very safe vs. 4.6 average dividend aristocrat (about 2.5% dividend cut risk in this recession)
  • Average FCF payout ratio: 41% vs. 61% industry safety guideline
  • Average debt/capital: 40% vs. 43% industry safety guideline vs. 37% S&P 500
  • Average yield: 3.4% vs. 1.9% S&P 500 and 2.3% aristocrats
  • Average discount to fair value: 26% vs. 26% overvalued S&P 500
  • Average dividend growth streak: 12.3 years vs. 25+ aristocrats, 20+ Graham Standard of Excellence
  • Average 5-year dividend growth rate: 11.2% CAGR vs. 8.3% CAGR average aristocrat
  • Average long-term analyst growth consensus: 12.0% CAGR vs. 6.4% CAGR S&P 500
  • Average forward P/E: 13.3 vs. 21.1 S&P 500
  • Average earnings yield: 7.5% vs. 4.7%% S&P 500
  • Average PEG ratio: 1.16 vs. 1.57 historical vs. 2.48 S&P 500
  • Average return on capital: 160% (86% Industry Percentile, High Quality/Wide Moat according to Joel Greenblatt)
  • Average 13-year median ROC: 162% (relatively stable moat/quality)
  • Average 5-year ROC trend: -7% CAGR (due to pandemic effects)
  • Average S&P credit rating: A – vs. A- average aristocrat (2.5% 30-year bankruptcy risk)
  • Average annual volatility: 28.8% vs. 22.5% average aristocrat (and 26% average Master List stock)
  • Average 5-year total return potential: 3.4% yield + 12.0% CAGR long-term growth + 6.2% CAGR valuation boost = 21.6% CAGR (15% to 29% CAGR with 30% margin of error)
  • Probability weighted expected average 5-year total return: 9% to 23% CAGR vs. 1% to 8% S&P 500
  • Mid-Range Probability-Weighted Expected 5-Year Total Return: 16% CAGR vs. 5% S&P 500

Now let’s walk through the DK Investment Decision Matrix using these fundamental stats.

An A- credit rating equates to 2.5% long-term bankruptcy risk.

In reality, the probability of all 11 companies going to zero is close to zero, which is the power of diversification (the only “free lunch” on Wall Street).

Credit Rating30-Year Bankruptcy Probability
AAA0.07%
AA+0.29%
AA0.51%
AA-0.55%
A+0.60%
A0.66%
A-2.5%
BBB+5%
BBB7.5%
BBB-11%
BB+14%
BB17%
BB-21%
B+25%
B37%
B-45%
CCC+52%
CCC59%
CCC-65%
CC70%
C80%
D100%

(Source: Dividend Kings Investment Decision Tool, S&P, The University Of St. Petersburg)

However, for our purposes here these 11 blue-chips rank a 5/5 collective preservation of capital score.

Dividend Return Potential

5-Year Estimated Dividend Return (% of your investment)

These 11 Blue-Chips
Current Yield3.4%
Long-Term Analyst Growth Consensus (Column AH in valuation tool, also in Research Terminal Lists)12.0%
Yield On Cost in 5-Years6.0%
Average 5-Year Consensus Yield4.7%
5-Year Estimated Dividend Return23%
S&P 50012%

(Source: Dividend Kings Investment Decision Tool)

These 11 companies, including the one non-dividend payer, are expected to generate almost double the market’s dividend return.

But since the cutoff for 4/5 is 2X the market’s dividend return this rates a 3/5 on return of capital potential.

Total Return Potential

Mid-Range Probability-Weighted Return Potential

These 11 Blue-Chips
5-Year Consensus Annualized Total Return Potential21.6%
Conservative Margin Of Error Adjusted Annualized Total Return Potential11.0%
Bullish Margin Of Error Adjusted Annualized Total Return Potential32.6%
Conservative Probability-Weighted Expected Annualized Total Return6.6%
Bullish Probability-Weighted Expected Annualized Total Return26.1%
Mid-Range Probability-Weighted Expected Annualized Total Return Potential16%
S&P 5005%

(Source: Dividend Kings Investment Decision Tool)

Even with a very high bar to clear, meaning at least three times the market’s rate of expected return, these 11 companies I bought in recent weeks score a 5/5 on potential return on capital.

Overall Decision Matrix

GoalThese 11 Blue-ChipsWhy

Score (Out of 5)

Preservation Of CapitalExcellent2.5% long-term bankruptcy risk (A- credit rating)5
Return Of CapitalExcellent23% of capital returned over the next 5 year via dividends vs 12% S&P 5003
Return On CapitalExcellent16% PWR vs 5% S&P 5005
Relative Investment Score87%
Letter GradeB+ (good)
S&P73% = C

Every investment decision I make has to score a B- or better or else we don’t buy a company.

Relative Investment ScoreGradeDescription
100%A+Exceptional
93%AExcellent
90% to 92.9%A-Very Good
87% to 89.9%B+Good
83% to 86.9%BSatisfactory
80% to 82.9%B-Well Above Market Average
77% to 77.9%C+Above-Market Average
73% to 76.9%CMarket-Average
70% to 72.9%C-Below-Market Average
67% to 69.9%D+Well Below Market Average
63% to 66.9%DPoor
60% to 62.9%D-Very Poor
Sub 60%FTerrible

(Source: Dividend Kings Investment Decision Tool) italicized = minimum cutoff to buy a company, bolded = score on these 11 companies

So that’s why I bought these 11 blue-chips 14 times over the last two weeks.

Now let’s review what my real-money Phoenix portfolio bucket, made up of 100% Phoenix watchlist blue-chips, SWANs, or Super SWANs looks like today.

Quality ScoreMeaningMargin Of Safety Potentially Good BuyStrong BuyVery Strong BuyUltra-Value Buy
3Very High Bankruptcy RiskNA (avoid)NA (avoid)NA (avoid)NA (avoid)
4Very PoorNA (avoid)NA (avoid)NA (avoid)NA (avoid)
5PoorNA (avoid)NA (avoid)NA (avoid)NA (avoid)
6Below-Average (speculative)35%45%55%65%
7Average25% to 30%35% to 40%45% to 50%55% to 60%
8Above-Average20% to 25%30% to 35%40% to 45%50% to 55%
9Blue-Chip15% to 20%25% to 30%35% to 40%45% to 50%
10SWAN (a higher caliber of Blue-Chip)10% to 15%20% to 25%30% to 35%40% to 45%
11Super SWAN (as close to perfect companies as exist)5% to 10%15% to 20%25% to 30%35% to 40%

Dividend Sensei Real Money Phoenix Portfolio Bucket (Everything I’ve Bought Since April 4th)

(Source: Morningstar) 27% cash/bond allocation not shown

Note that this is NOT 100% of my retirement portfolio, just what I’ve been buying since the recession became official.

Across my entire retirement portfolio, I’m well within the risk-management guidelines used by all Dividend Kings portfolios.

Also, note that since April some stocks have gone up significantly, and so some of the companies I bought are no longer good buys or even reasonable buys.

My Phoenix Portfolio’s Biggest Winners

(Source: Morningstar) 27% cash/bond allocation not shown

Dividend Kings color-codes our Valuation Lists and Research Terminal to help members always know whether a company is

  • green: potentially good buy or better
  • blue: potentially reasonable buy
  • yellow: hold
  • red: potential trim/sell

My Personal Phoenix Portfolio Sorted By Most To Least Undervalued

(Source: Dividend Kings Valuation List)

You can see that a lot of the companies I’ve bought opportunistically are currently “holds”, meaning between 1% and 17% overvalued.

Does it make sense to own 39 companies? Aren’t I just building a personal ETF?

In a way I am, using the proven smart beta strategies that over time achieve superior investing results.

I’m also overwriting the highest conviction ideas (lowest to highest PEG ratios) which is what my fellow Dividend Kings co-founder Chuck Carnevale does in his asset management company.

Berkshire similarly owns 46 companies in its portfolios, despite having 73% in its top five names.

  • My top 10 Personal Phoenix holdings = 44% of my portfolio

My goal is very simple, which is to achieve key fundamental statistics that are likely to achieve my long-term goals.

Dividend Sensei Phoenix Portfolio Goals

Fundamental MetricGoalCurrently
Yield2.5% to 3.5%3.0%
Long-Term Dividend Growth (OTC:CAGR)8% to 12%14.6%
ValuationFair Value or Better

11% Undervalued

Long-Term Total Return (OTC:CAGR)9+% (S&P 500 7% to 9% CAGR historically)19.9% (15% PWR)

(Source: Morningstar)

The 39 companies I own in this personal smart beta ETF are currently meeting or exceeding my personal goals.

So now let’s walk them through the DK Investment Decision Matrix, by first summarizing their aggregate fundamentals.

Fundamental Stats On Dividend Sensei Personal Phoenix Portfolio

  • Average quality score: 9.8/11 Blue-chip quality vs. 9.6 average dividend aristocrat
  • Average dividend safety score: 4.6/5 very safe vs. 4.6 average dividend aristocrat (about 2.5% dividend cut risk in this recession)
  • Average FCF payout ratio: 53% vs. 62% industry safety guideline
  • Average debt/capital: 40% vs. 44% industry safety guideline vs. 37% S&P 500
  • Average yield: 3.5% vs. 1.9% S&P 500 and 2.3% aristocrats
  • Average discount to fair value: 15% vs. 26% overvalued S&P 500
  • Average dividend growth streak: 19.3 years vs. 25+ aristocrats, 20+ Graham Standard of Excellence
  • Average 5-year dividend growth rate: 11.1% CAGR vs. 8.3% CAGR average aristocrat
  • Average long-term analyst growth consensus: 11.3% CAGR vs. 6.4% CAGR S&P 500
  • Average forward P/E: 17.4 vs. 21.1 S&P 500
  • Average earnings yield: 5.8% vs. 4.7%% S&P 500
  • Average PEG ratio: 1.84 vs. 2.16 historical vs. 2.48 S&P 500
  • Average return on capital: 118% (85% Industry Percentile, High Quality/Wide Moat according to Joel Greenblatt)
  • Average 13-year median ROC: 116% (relatively stable moat/quality)
  • Average 5-year ROC trend: +4% CAGR (relatively stable moat/quality)
  • Average S&P credit rating: A – vs. A- average aristocrat (2.5% 30-year bankruptcy risk)
  • Average annual volatility: 26.0% vs. 22.5% average aristocrat (and 26% average Master List stock)
  • Average 5-year total return potential: 3.5% yield + 11.3% CAGR long-term growth + 3.4% CAGR valuation boost = 18.2% CAGR (12% to 24% CAGR with 30% margin of error)
  • Probability weighted expected average 5-year total return: 5% to 22% CAGR vs. 1% to 8% S&P 500
  • Mid-Range Probability-Weighted Expected 5-Year Total Return: 14% CAGR vs. 5% S&P 500

The difference between these average stats and my portfolio stats is due to the fact that my personal Phoenix portfolio is weighted more towards faster-growing and slightly less undervalued blue-chips.

But even if I were to buy all of these companies today, equally weighted, including the overvalued ones, the overall high-quality, safety, and double-digit long-term consensus growth would likely result in very strong

  • preservation of capital: A- average credit rating
  • return of capital: 3.5% yield + 11.3% CAGR long-term growth
  • return on capital: 14% CAGR probability-weighted expected return

So now let’s put it all together and see how reasonable and prudent this 39 company portfolio really is.

Putting It All Together

  • preservation of capital: 5/5 (A-rated companies)

Dividend Return Potential

5-Year Estimated Dividend Return (% of your investment)

My Personal Phoenix Portfolio
Current Yield3.0%
Long-Term Analyst Growth Consensus14.6%
Yield On Cost in 5-Years5.9%
Average 5-Year Consensus Yield4.5%
5-Year Estimated Dividend Return22%
S&P 50012%

(Source: Dividend Kings Investment Decision Tool)

Total Return Potential

Mid-Range Probability-Weighted Return Potential

My Personal Phoenix Portfolio
5-Year Consensus Annualized Total Return Potential19.9%
Conservative Margin Of Error Adjusted Annualized Total Return Potential10.1%
Bullish Margin Of Error Adjusted Annualized Total Return Potential30.0%
Conservative Probability-Weighted Expected Annualized Total Return6.1%
Bullish Probability-Weighted Expected Annualized Total Return24.0%
Mid-Range Probability-Weighted Expected Annualized Total Return Potential15%
S&P 5005%

(Source: Dividend Kings Investment Decision Tool)

DS Phoenix Portfolio Investment Decision Matrix

GoalDS Phoenix PortfolioWhy

Score (Out of 5)

Preservation Of CapitalExcellent2.5% long-term bankruptcy risk (A- credit rating)5
Return Of CapitalAverage22% of capital returned over the next 5 year via dividends vs 12% S&P 5003
Return On CapitalExcellent15% PWR vs 5% S&P 5005
Relative Investment Score87%
Letter GradeB+ (good)
S&P73% = C

(Source: Dividend Kings Investment Decision Tool)

So there you have it, an evidence-based and data-driven explanation of now just what I’ve bought in the last two weeks, but since April, when I switched to buying just the DK Phoenix daily blue-chip deals.

Since this recession began I’ve worked hard to make my retirement portfolio approach, and that of all the Dividend Kings model portfolios, as evidence-based, objective, and methodical as possible.

Dividend Kings has exciting long-term plans on how to keep improving our safety and quality scoring system, using advanced statistical regression analyses across over 20 key fundamentals metrics.

But the goal of long-term investing is to make sound and prudent decisions, not strive for perfection.

(Source: imgflip)

The goal of any approach is to avoid unnecessary mistakes, via low-risk/high-probability decisions, using the best available facts we have at the time.

You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right-and that’s the only thing that makes you right.” – Warren Buffett

The facts will always change over time, sometimes in our favor, sometimes not.

But as long as our reasoning and risk management is rock solid, then we don’t have to pray for luck, we can make our own.

(Source: AZ quotes)

I’ve spent over six years honing my analytical skills and the past year building out and improving a powerful set of tools for Dividend Kings members to make smart long-term investing decisions.

  • Valuation Lists
  • Research Terminal company screener
  • Investment Decision Tool
  • DK Daily Blue-Chip Deal Videos (all Phoenix buys I’m making for my retirement portfolio)
  • Tutorial Videos on how to use our tools
  • 12 others

Our world-class team of analysts, via our “how to invest better” articles and weekly podcasts, are helping to educate members on sound and proven long-term investment strategies.

Combined with our powerful suite of tools, success becomes a matter of discipline, patience, and time, not luck.

Our approach is not get rich quick market timing schemes or dangerous yield chasing.

(Source: imgflip)

If you want speculation, listen to Dave Portnoy, the “captain of the day traders” and day trade risky momentum stocks.

If you want to maximize the chances of actually achieving your long-term financial goals then it takes a different approach, based on the Dividend King’s motto of “quality first and prudent valuation & risk management always.”

Disclosure: I am/we are long APOG, ABBV, BABA, MDU, UGI, SNA, TD, PRU, ORCL, CTSH, ANTM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Dividend Kings owns APOG, ABBV, BABA, MDU, UGI, SNA, TD, PRU, ORCL, CTSH, and ANTM in our portfolios.


Originally published on Seeking Alpha

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