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What Does a Value Portfolio Look Like?

Tracey Ryniec
  • (1:00) - The Keys To Value Investing
  • (8:05) - Dividend Aristocrats: Stocks and ETFs
  • (16:45) - Retail Stocks Continue To Get Cheaper: Insider Buying
  • (25:00) - Episode Roundup: NOBL, REGL, M, XOM, JCP, JILL, RTW, PIR, EXPR

Welcome to Episode #155 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

This week, Tracey continues with her series looking at Benjamin Graham’s best-selling book for value investors called “The Intelligent Investor.”

First published in 1949, the last edition by Graham was published in 1973. But in 2003, Jason Zweig, along with a preface by Warren Buffett, updated the book to account for the events of the last 40 years.

What Does a Value Portfolio Look Like?

It sounds so easy.

Value investors buy cheap stocks and they hold them.

But what does that mean?

Graham outlines several tips that he thinks investors should consider for their portfolios.

1.       How big should your portfolio be? Graham recommends between 10 and 20 stocks. But remember, he was writing in the 1970s, long before ETFs, and even mutual funds, became popular vehicles for investors. You may now have a portfolio that is only ETFs.

2.       What types of companies should you own? Graham recommended buying big companies which were conservatively financed. But in 2019, investors should also consider small and medium-sized companies as part of a balanced portfolio.

3.       According to Graham, they should have a long record of dividends. But do value investors today really need income-producing stocks? Many small caps don’t pay dividends.

4.       Ask: “How much?” Put a limit on what you are willing to pay for the stock. Value investors usually look for companies trading with a forward P/E of 15 or less but you may choose to go even cheaper, at, say 10x.

Finding Dividend Aristocrats

Companies with a record of paying a dividend, and raising it, over a long period of time are often called dividend aristocrats.

You may stumble across a stock and discover that it has raised its dividend for decades.

That’s what happened to Tracey recently when Exxon XOM announced its third quarter dividend payment and said that it had increased its dividend for 37 consecutive years.

But otherwise, most people looking for the aristocrats, which are companies that have raised their dividends consistently over many years, look to the ETFs.

Two ETFs to consider are the ProShares S&P 500 Dividend Aristocrats NOBL and the Proshares MidCap 400 Dividend Aristocrats REGL.

The S&P 500 Dividend Aristocrats have raised their dividend at least 25 consecutive years. Impressive.

The MidCaps have done it for 15 years.

But just because they pay a dividend doesn’t mean they are cheap. Or that the company is fundamentally sound.

The Retailers are Cheap

Macy’s M has plunged near 5-year lows again. It is trading with a forward P/E of 5.4. That’s certainly cheap.

It has paid a dividend since 2003, but it did cut it during the financial crisis in 2009.

Macy’s is now yielding 9.8%.

Other retailers are trading below $5 now, including J. Jill JILL. Many consider stocks under $5 to be on sale. It hasn’t reported yet. Stay tuned.

What else should investors know about setting up their portfolio and the cheap retailers?

Find out on this week’s podcast.

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ProShares S&P 500 Dividend Aristocrats ETF (NOBL): ETF Research Reports
ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL): ETF Research Reports
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
J.Jill, Inc. (JILL) : Free Stock Analysis Report
Macy's, Inc. (M) : Free Stock Analysis Report
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