As we approach the end of the year there is a big uncertainty in the air.  We are approaching what is being referred to as the Fiscal Cliff.  Unless the United States Congress can compromise and get a solution in place, there will be tax increases across the board for US citizens and massive amounts of spending cuts.  Many experts believe that unless a solution is in place, the country will go over the Fiscal Cliff and bring about another economic recession.  You might want to check out my article about the Fiscal Cliff or another good article written by FI Fighter called Dividend Growth Investing and the Fiscal Cliff.

What if we crash over the Fiscal Cliff?

As a dividend growth investor, I look towards the upcoming Fiscal Cliff as opportunity.  If the US does begin to spiral into another recession and the stock markets start to plummet, you can bet I will be on the sidelines trying to buy up as many companies as I can.  There are quite a few companies that I would love to own but have usually been priced at a premium in the stock market.  If prices on these companies come down, I will be eagerly buying as much as I can because I know in the long run the economy will recover.  The Fiscal Cliff merely will offer up a great opportunity to buy some of the world’s best companies at prices you normally can’t come close to getting.

Companies I Would Love to Buy

Below you’ll find the companies I would love to add to my portfolio.  These are some of my most coveted stocks but I haven’t had the opportunity to buy them in the past because I believe they have been valued with too high a premium.  If prices come down, I will be loading up on them.  Most of these companies trade with a P/E (price to earnings ratio) above 20.  I typically don’t like to pay more than 15 or 16 times earnings for the companies I add to my portfolio.

  1. Procter & Gamble (PG) – PG is a consumer products company that has increased their dividends for 56 years in a row.  Currently they trade at a P/E of 22.9 and a dividend yield of 3.18%.
  2.  Johnson & Johnson (JNJ) - JNJ is a pharmaceutical and health products company that has increased their dividend for 50 years in a row.  They currently trade at a P/E of 23.2 and a dividend yield of 3.44%.
  3. Coca Cola (KO)- Coke is a beverage company that has grown their dividend every year for the past 50 years.  Coke currently trades at a P/E of 19.6 and a current dividend yield of 2.71%.  I already have some shares of KO in my portfolio but I’d love a good buying opportunity to add some more shares.
  4. Colgate Palmolive (CL) - Colgate Palmolive is another consumer products company that I’d absolutely love to include in my portfolio.  Colgate has been increasing their dividend payment for the past 49 years.  Currently they trade at a P/E of 20.8 and a dividend yield of 2.32%.
  5. Kimberly-Clark (KMB) - KMB is a consumer products company with many great brands such as Huggies and Kleenex.  KMB has increased dividends for 40 years in a row.  They currently trade at an 18.1 P/E ratio with a dividend yield of 3.46%.
  6. PepsiCo (PEP) - Pepsi is the other beverage giant that I’d like to add to my portfolio along with Coke.  Pepsi also has a nice history of dividend increases going back 40 years in a row.  Pepsi trades with a P/E of 18.7 and a dividend yield of 3.06%.
  7. Unilever (UN) or (UL) - Unilever is another multi brand consumer products company with a history of increasing dividends 12 years in a row.  Unilever trades for P/E around 20 and a dividend yield around 3.9%.
  8. Visa (V) – Visa is the credit card company.  They have been increasing dividends for the past 6 years.  I believe credit cards are going to be around for a long time and Visa is one of the leading companies.  Unfortunately Visa is priced at a really high P/E of 78.9.  I really want this company but will never be able to get myself to pay such a high P/E for any company.  Another issue with V is the low dividend yield of 0.89%.  If a recession hit and Visa’s share price suffered, I would keep an eye on it in case the opportunity comes to get this high growth company at a great discount.

Conclusion

The above are 8 companies I would love to add to my dividend growth stock portfolio.  However, because these companies are so great they demand a premium price in the market.  If the Fiscal Cliff comes to fruition and we delve back into recession, I will be keeping an eye on these companies with the intent of adding some gems to my investment portfolio.

What are some companies you would like to own but have been priced too high lately?  What companies would you be adding to your portfolio if the market took a downturn?

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12 Responses to What I’ll Be Buying if the Fiscal Cliff Causes Recession

  1. Dan Mac,

    Great list there.

    I’m kicking myself for not buying V around $90. It made one of my monthly “What are you buying” articles, and I still passed. Oh well.

    All of the above companies look great to me. I personally do not own KMB, V, UL or CL…so I would look to buy those if I could. I especially like CL out of the lot, and would just need to come down slightly for it to be in my sights. I’m a bit concerned about KMB’s moat regarding the fact that they are primarily a paper product company.

    Happy hunting!

    Best wishes.

    • Dan Mac says:

      Thanks Dividend Mantra. While V may not be the typical dividend growth stock, it still has a lot of my interest because it seems practically everyone uses credit or debit cards these days in place of cash. I don’t know if I’ll ever get the opportunity to own it though because I just can’t bring myself to pay so much for a company compared to earnings. I may miss out on some good growth opportunities with my method but I think sticking to your investing rules will keep you out of trouble in the long run.

  2. That’s a great list of companies. I sure would like to become a part owner of them. But at the right price.

    • Dan Mac says:

      Always needs to be at the right price JC! Possibly the most important thing when investing in my opinion.

  3. Rob says:

    Hi Dan,

    I’m right on board with you. I’ve been watching PG, JNJ, KO, and KMB over the last couple of months for exactly the same reason. Until now I’ve only invested in Canadian dividend companies, but I have a reserve of cash set aside for making some entry purchases into the US market. It’s just a matter of waiting a bit longer, picking my time, and hopefully buying in when (if) prices lower a little more to less of a premium.

    • Dan Mac says:

      Thanks Rob, the Fiscal Cliff may offer up a great buying opportunity and the perfect time for you to enter the US stock markets. A reserve of cash set aside to take advantage of any opportunities that present themselves is a great idea. Personally I have all my cash put to work already other than an emergency fund which I like to keep in savings accounts. Hopefully I’ll still be able to take advantage of the possible Fiscal Cliff with new money coming in from my salary.

  4. As a Canadian, I watch the fiscal cliff debate with a different point of view. Still, I don’t think that the end of the dividend world is coming. Despite the fact that taxes have gone up and gone down in the past, some companies have been paying growing dividend for more than 50 years. There will be some temporary adjustment but overall, it will be business as usual. Also, for people holding there dividend stocks in registered accounts, there will be no real impact. With all the fear surrounding this issue, it might just be a great buying opportunity. Happy week-end!

    • Dan Mac says:

      I agree Dividend Engineer. I believe if anything does happen and the market declines it will offer up a great buying opportunity for the long run and nothing else. One theory I have heard is that companies may change their dividend philosophies and grow their dividends by smaller amounts. Like you though I look at all the companies like KO and JNJ that have grown dividends for 50+ years and hope that they continue.

  5. kolpin says:

    Right now, I’m focused more on industrial stocks that pay dividends, as I believe they are the most undervalued and have the most growth potential. I’d love to add more GE, DOV, NSC, CAT to my portfolio.

    • Dan Mac says:

      Thanks Kolpin. I recently purchased NSC and have my eyes on a few other industrials. I think currently you can find some good deals on industrials. In this article I was I wanted to point out some companies I’d like to be buying but feel the price needs to come down a bit. If the Fiscal Cliff and recession come to fruition then it could offer up a good opportunity to pick up some of the companies I’ve mentioned in the article.

  6. I also am hoping for a correction as a result of the fiscal cliff fears. During the previous issues about the debt ceiling in Oct 2011, the stock market fell steeply after the decision was reached, then recovered.

    • Dan Mac says:

      DGI, I agree that any correction will be followed by a recovery. Just not sure how long that recovery will take whether it be 1 day, week, month, year or a few years. Either way I know I have plenty of time to wait it out and collect dividend checks along the way!

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