A peek at the 'Lucky 13'

Here are a few of the top picks from one of the best defensive investing gurus out there.

By MoneyShow.com Jan 12, 2012 5:05PM

Image: Image: Woman reading newspaper in livingroom © Tetra images/Getty Images Woman reading newspaper in livingroom © Tetra images/Getty ImagesBy Kelley Wright, Investment Quality Trends 

Special to MoneyShow.com


After posting robust double-digit returns in 2009 and 2010, analysts' predictions for the S&P 500 in 2011 were for more of the same. In fact, the predictions ranged from a low of 1,300 to a high of 1,520, with the consensus at 1,391.


The S&P failed to reach the consensus estimates for 2011. This is not a slam on Wall Street analysts. But in contrast to the last two years, analysts’ consensus estimates for 2012 are more subdued.


Not to be a contrarian, but my outlook for 2012 -- the second half anyway -- is actually upbeat.


Per tradition, we present our annual Lucky 13 portfolio. Although we do not make specific end-of-year price predictions for each of the component companies, we do believe this list of 13 will outperform the major averages over the next 12 months.


While we do not possess a crystal ball that divines future stock prices, we are not exactly flying blind, so to speak. With each of these companies, we can look at their history of earnings and dividends.


Beyond their long-term track records of uninterrupted dividends, we find that they also have long-term track records for annual dividend increases, most of which are near or in excess of 10% per year on average.


An uninterrupted record of dividends can only be supported by consistent earnings. Logically then, long histories of consistent dividend increases must be supported by equally long histories of earnings increases.


Collectively these companies generated billions of dollars of profits last year, and many, based on their dividend increases, appear to believe they will do so again in the coming year. Also based on their past histories, it is not far-fetched to believe that some of those anticipated profits will be passed on to investors in further dividend increases.


CVS Caremark (CVS) made two significant dividend increases in the past year alone. Even if earnings don’t live up to expectations, the payout ratios for these companies provide sufficient flexibility whereby they could continue to increase dividends while waiting for their earnings to gather steam once again.


Our thought for the 2012 Lucky 13 was to use the barbell approach; some defensive mainstays such as Abbott Labs (ABT), Coca Cola (KO), and Johnson & Johnson (JNJ) to buffet any first-half headwinds, with more exposure to cyclicals and industrials for the second half of the year, which we believe will offer greater upside potential should the economic picture brighten.


As always, quality and value combined with dividend-growth will be the keys for a successful year. On behalf of Michael and the rest of our crew, we wish you and yours a healthy and productive New Year. Thank you for allowing us to accompany you on your investment journey. Deus Tecum.


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