13 World-Class Blue Chips I Just Bought For My Retirement Portfolio (2024)

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In a few weeks, I'll be able to return to my normal 2 weekly SA article schedule (I've been crushed with family health obligations and getting the Dividend Kings Research Terminal completed).

For now, I'm alternating between articles highlighting reasonable to attractively priced blue chips for various needs and returning to my retirement portfolio updates, but with one important change.

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I'm just buying what the Dividend Kings' Phoenix portfolio buys each Friday, the same companies, and the same amount of shares.

Feel free to cherry-pick and build your own Phoenix portfolio (which is effectively what I'm doing), which will rise from the ashes of this recession and soar to new heights.

Phoenix isn't so much a portfolio as an investing philosophy, steeped in safety, quality, reasonable/attractive valuation, and a dedication to evidence-based and time tested principles of long-term investing.

The World Has Changed Drastically In The Past 2 Months So Investors Must Adapt As Well

We're now likely facing the worst recession since 1946, and likely the worst single quarter of growth in history.

(Source: NY & Dallas Feds, Harvard)

The New York and Dallas Feds have partnered with Harvard to create a new high-frequency economic index based on 10 weekly economic reports.

This is being used to estimate, in as close to real-time as possible, how fast the US economy is contracting right now.

The news is grim, as one would expect when 30% of the US economy (per the Bureau of Labor Statistics) is completely shut down. Each week the economic data is getting worse and the NY/Dallas Feds now estimate we're growing at -37% on an annualized basis.

previous single-quarter record: -10% in 1958
JPMorgan forecasts -40% in Q2 and 14% unemployment at the end of 2020
St. Louis Fed forecast -50% in Q2 and peak unemployment of 32% to 40% in Q2
Congressional Budget Office is forecasting 9% unemployment at the end of 2021

Corporate earnings, not surprisingly, are beginning to converge on the $110 to $145 2020 S&P estimates that Brian Gilmartin of Trinity Asset Management says he's seen in recent weeks.

Goldman Sachs is the most pessimistic forecast so far, $110, or about 33% decline in 2020 EPS, with a stunning -123% in Q2.

(Source: Lance Roberts)

Given the possibility for as much as -50% GDP growth in Q2, it's not unreasonable for Goldman to forecast that the S&P 500 will report a loss this quarter.

The good news is that the worse the Q2 forecast for GDP growth the faster the recovery is expected to be as well.

Economic Recovery Forecasts

The same is true for corporate earnings which are expected to see a sharp recovery in 2021 and 2022.

Latest S&P 500 EPS Growth Consensus Through 2022

(Source: Brian Gilmartin, Lipper Financial)

2020 EPS forecasts have plunged by 21% in the past two months. As this year's consensus expectations have fallen, 2021 and 2022 have been steadily rising.

This means that we're likely in for the worst earnings year in at least a decade, but we can see the light at the end of the tunnel. That's IF we achieve phase one restarts as expected (by July according to the blue chip economist consensus).

Here is the Institute for Health Metrics and Evaluation or IHME phase 1 POTENTIAL restart schedule for each state.

5/4: HI, MT, VT, WV

5/11: NH, AK, ID, NC

5/18: WI, AL, CA, DE, LA, MI, NV, NM, OH, WA

5/25: OR, WY, CO, IL, IN, TN, MN

6/1: CT, FL, KS, MS, MO, NJ, NY, PA, SC, TX

6/8: AZ, DC, KY, MD, MA, RI, VA

6/15: GA, OK, UT

Phoenix Watchlist: Companies Most Likely To Rise From The Ashes And Soar To New Heights

Let me be very clear that almost NO companies' fundamentals are likely to be spared during this recession.

Johnson & Johnson (JNJ) is expected to see 11% EPS decline this year
Philip Morris International (PM) recently saw its 2020 consensus forecast fall 6% in a matter of weeks
Coca-Cola (KO) reported a 25% decline in volumes in the last month (YoY)
utilities reported 8% YoY drop in electricity usage in March

(Source: New York Times)

We've already surpassed the peak electricity demand drop of the Great Recession... and this recession hasn't likely peaked yet. In Italy, where the lockdown is ongoing and has lasted about three weeks longer than ours, electricity demand has plunged by almost 25%.

As part of my weekly 80 to 100 company fundamental updates of Dividend Kings' valuation tool/research terminal I spend Monday's and Tuesday's pouring through consensus estimates for Master List companies including

all the dividend aristocrats
all the dividend kings
all 11/11 quality Super SWAN companies

With very rare exceptions (mostly drug companies and Amazon (AMZN)) almost no companies have not seen significant fundamental deterioration this year (some utilities have seen up to 10% declines in EPS consensus in the last 2 months).

2020 is NOT a year of earnings growth. It's a year when the focus is on corporate survival, and every dividend declaration that avoids a cut is met with relief, and expected dividend hikes of any size are met with near jubilation.

(Source: University of St. Petersburg)

Which is where the Dividend Kings' Phoenix Watchlist and model portfolio come in.

I've constructed a 60 company portfolio of the world's premier companies (87% dividend stocks) with not just strong, but outstanding fundamentals, including an average credit rating of "A", implying about 0.7% 30-year bankruptcy risk.

Companies that are very likely to rise like a Phoenix from the ashes of this recession and soar to new heights. All while ensuring stable or even growing income for investors.

These 60 companies represent all 11 sectors of the US/global economy. The Phoenix portfolio follows my revised risk-management guidelines, created over six years and with input from colleagues with over 100 years of collective asset management experience.

How do I know these 60 companies (anything 20+% overvalued gets replaced each weekend with a suitable blue chip trading at a good buy price or better, so the list is always changing) are ones conservative income investors can trust in this recession?

Phoenix Watchlist Fundamental Quality/Safety Stats

average quality score: 10.2/11 SWAN quality vs. 9.6 average aristocrat
average dividend safety score: 4.7/5 very safe vs. 4.6 average aristocrat
average payout ratio: 51% vs. 62% industry safety guideline
average debt/capital: 45% vs. 44% industry safety guideline
average yield: 3.2% vs. 2.1% S&P 500
average dividend growth streak: 24.5 Years (Graham Standard of excellent is 20+)
average 5-year dividend growth rate: 12.2% CAGR
average long-term analyst growth consensus: 10.1% CAGR vs. 6.3% CAGR S&P 500 20-year average (thriving companies)
average return on capital: 149% (very high quality according to Joel Greenblatt)
average return on capital industry percentile: 86% (wide moat according to Greenblatt)
average 13-year median ROC: 137% (stable quality/moat)
average 5-year ROC trend: +4% CAGR (improving quality/moat)
average S&P credit rating: A vs. A- average aristocrat

Because the quality of these companies is backed up by not my own qualitative opinion, but by objective proof such as quarter-century-long dividend growth streaks, very strong credit ratings, and industry-leading returns on capital that are stable over time.

It's only from this new SWAN quality watchlist that I or any dividend kings' model portfolios are buying companies each week.

And that buying is on a disciplined schedule that involves

buying one company per day right now (only good buys or better)- Phoenix portfolio, announced 3 times per day on the DK chat board
once per week on Friday's (DK portfolios and my retirement portfolio)

My retirement portfolio literally just follows Phoenix, buying whatever company it's buying, in the exact same amounts.

The amount of buys has varied, ranging from 10 companies (on March 23rd when the S&P hit -35% intra-day) to just one company per day, depending on what the pandemic/economic data indicates is prudent.

13 Phoenix Buys For My Retirement In The Last 3 Weeks

April 3rd

AvalonBay Communities (AVB) 8 shares @ $136.17
Kimberly-Clark (KMB) 8 shares @ $130.02
Bank of Nova Scotia (BNS) 26 shares @ $39.00
Realty Income (O): 22 shares @ $45.74
Royal Bank of Canada (RY): 18 shares @ $59.11
Polaris (PII) 26 shares @ $39.09

April 9th

Facebook (FB) 6 shares @ $174.54
Alphabet (GOOG): 1 share @ $1,219.55
Automatic Data Processing (ADP) 8 shares @ $141.70
Carlisle Companies (CSL) 9 shares @ $126.95

April 17th

Medtronic (MDT) 11 shares @ $98.82
Raytheon Technologies (RTX) 17 shares @ $64.61
Comcast (CMCSA) 27 shares @ $38.55

Notice how Phoenix and I began buying aggressively, up to six stocks on March 3rd (5 + PII opportunistic buy when it plunged 12% to a multi-year low).

Over time we've scaled back buys and are now down to one per day. That's to preserve buying power for the corrections that will likely happen over the coming months.

(Source: Ben Carlson)

Financial Crisis Bear Market Rallies

(Source: Nick Maggiulli)

Why not wait for the bottom? Because as I've explained in dozens of articles, no one can call the bottom.

(Source: Michael Batnick)

Jim Simons is the founder of Renaissance Technologies, the best trading firm on earth, with 39% CAGR total returns since 1988.

He came very close to shorting billions (not his firm's strategy) on December 24th, 2018, because not even the objectively greatest trader in history can time the market. Renaissance Tech made hundreds of billions by making millions of daily bets, locking in 1% profits/losses each time, and being right 52% of the time. It's a hyper-short-term focused quant hedge fund, not the kind of trading most of us should ever attempt.

The point is that

the greatest trader in history
armed with the best algorithms
programmed literally by rocket scientists and quants with Ph.D. from MIT and Stanford
running on supercomputers
fed by data from around the world brought in by fiber optic cables
CAN'T TIME THE MARKET (at least not the way we think of it)

Thus I don't even try to call the bottoms, rather I just focus on Buffett's core rules of stock investing.

(Source: Chuck Carnevale)

Why did I invest about $14,000 over the last three weeks into these 13 companies in particular? Other than because they happened to be in that Friday's DK Phoenix buy rotation?

Fundamental Stats On These 13 Phoenix Stocks

average quality score: 10.3/11 SWAN quality vs. 9.6 average aristocrat
average dividend safety score: 4.7/5 very safe vs. 4.6 average aristocrat
average payout ratio: 53% vs. 65% industry safety guideline
average debt/capital: 35% vs. 47% industry safety guideline
average yield: 3.2% vs.2.1% S&P 500
average discount to fair value: 21% vs. S&P 500 18% overvalued
average dividend growth streak: 26.5 years = aristocrat
average 5-year dividend growth rate: 8.1% CAGR
average long-term analyst growth consensus: 9.2% CAGR vs. 6.3% CAGR S&P 500 20-year average
average forward P/E: 15.9 vs. 19.3 S&P 500
average earnings yield: 6.3% vs. 5.2% S&P 500
average PEG ratio: 1.72 vs. 2.27 S&P 500
average return on capital: 81% (very high-quality according to Greenblatt)
average return on capital industry percentile: 83% (wide moat according to Greenblatt)
average 13-year median ROC: 93% (stable quality/moat)
average 5-year ROC trend: -1% CAGR (stable quality/moat)
average S&P credit rating: A vs. A- average aristocrat
average annual volatility: 22.6% vs. 22.5% average aristocrat (and 26% average Master List stock)
average market cap: $160 billion vs. $113 billion S&P 500
average 5-year total return potential: 3.2% yield + 9.2% CAGR long-term growth + 4.9% CAGR valuation boost = 17.3% CAGR (12% to 22% CAGR with 25% margin of error)

Some of these companies are slow growers, some moderate growers, and some rapidly growing. Most pay modest dividends, some pay generous dividends, and some pay no dividend at all.

BUT the combination of all 13 results in a very strong dividend growth portfolio that yields 1% more than the market, is expected to grow about 50% faster over time, and most importantly, is objectively much higher quality.

If anything can survive the Great Lockdown Recession with dividends intact, I'm confident that it's this growing collection of Phoenix quality companies.

My Recession Phoenix Buys

(Source: Morningstar)

Note that this is NOT my entire retirement portfolio, just what I've been buying since this became a recession (in March per Chicago Fed).

This is NOT meant to represent a fully diversified and prudently-risk managed portfolio.

37% of my cash is currently in SPTL (long US-Treasuries)
13% is in VGSH (US T-bills)

I don't have time to include the bond tracking in this portfolio (I'm managing 7 in total, including on a daily basis for DK).

(Source: Morningstar)

Note also that NOT all of these companies are still good buys. I bought KMB when it was mildly undervalued (Super SWANs are a potentially good buy at 5% discount). It's now overvalued and a hold.

(Source: Dividend Kings Valuation tool) green = potentially good buy, blue = potentially reasonable buy, yellow = hold, red = potential trim/sell

However, other than KMB everything I bought recently remains a reasonable buy or better. Morningstar's overall estimate of 20% undervaluation for these 13 companies matches the DK model's 21% margin of safety estimate.

(Source: Morningstar)

The precise companies I'm buying each week depend on where in the Phoenix list we are. Phoenix is buying in order of fastest to slowest growing good buys or better.

Over time my personal Phoenix portfolio will look a lot like the Phoenix portfolio in terms of style.

Dividend Kings' Phoenix Portfolio Stock Style

(Source: Morningstar)

The goal with Phoenix is the maximum long-term income with the strongest short-term safety.

Thus Phoenix is NOT fixated on any one strategy, like value vs. growth, but represents a good balance of all strategies.

In fact, Phoenix is based on several time tested alpha strategies, such as quality (returns on capital), dividend growth, value, and equal weighting (at least initially).

My Phoenix Portfolio Sector Concentration

(Source: Morningstar)

My personal Phoenix portfolio isn't yet diversified into each sector since I've only been able to buy 13 companies over three weeks.

Thus it doesn't comply yet with my 20% or less max sector risk-management guidelines. Over time it will begin to look more like the Dividend Kings' Phoenix portfolio whose sector allocations look like this.

Dividend Kings' Phoenix Portfolio Sector Concentrations

(Source: Morningstar)

Bottom Line: When The World Drastically Changes, Smart Investors Adapt

I have NOT sold a single share of what I own, even some of the Fallen Angels like Carnival (CCL), Meredith Corp. (MDP), and Texas Roadhouse (TXRH), which have suspended their dividends.

I have confirmed their long-term thesis remain intact but as Fallen Angels they are a "hold" for anyone who owns more than a 1% position in their portfolios.

For new money today, the primary focus for conservative income investors like me must be on safety and quality above all else.

That means well-covered dividends, very strong balance sheets, and entrusting our savings to some of the highest quality companies, run by the best and most trustworthy management.

American and the world will get through this crisis, just as we have every other major challenge we've faced in over 200 years.

If we don't? Then it's the apocalypse and no portfolio strategy will save you, but it won't matter because if the global economy collapses permanently we'll have much bigger things to worry about than stock prices.

(Source: Imgflip)

The nature of saving and investing for the future assumes, well there will be a future. If you are convinced this is economic doomsday, then there is no reason to consider buying any stocks at all.

If, however, you share my opinion, as well as that of Howard Marks, Warren Buffett, Charlie Munger, Chuck Carnevale, Jerome Powell, James Bullard, Ben Bernanke, and Neel Kashkari that this recession is not the beginning of a Depression, then today is a great time to be buying stocks.

NOT in an "all in" manner, that attempts to time the bottom, but in a reasonable and prudent manner designed to buy top quality income-producing assets at reasonable to attractive valuations.

In that regard, AVB, O, BNS, RY, PII, FB, GOOG, ADP, CSL, MDT, RTX, and CMCSA all represent potentially good to reasonable buys right now. KMB is a great Super SWAN quality dividend aristocrat that can offer low double-digit return potential if you buy it at a 5% or greater discount (it's about 5% overvalued today, good buy price $127 or less).

In the coming weeks, I'll continue to share my insights about the macroeconomic/pandemic picture as well as what companies I'll be buying for my personal Phoenix portfolio. I will also be providing updates on what this recession-proof (in aggregate, no company on its own is recession-proof) portfolio looks like over time.

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