Heirloom Stocks:The Ultimate Long-term Investment

The Stocks To Give Your Grandchildren

• What are heirloom stocks?• Why are they especially desirable?• How to choose heirloom stocks• Some attractive heirloom stocks• When to sell heirloom stocks• Role of heirloom stocks in your portfolio• Permanent Wealth heirloom stocks

What Are Heirloom Stocks?

• Have not only paid a dividend every year for 30+ years, but have increased that dividend every year for 30+ years

• 82 such stocks listed in the United States• Oldest track record goes back to 1954• 14 stocks over 50 years, 28 stocks with 40 to 49 years,

and 40 stocks with 30 to 39 years– Oddly, only two stocks have records of 20 to 29 years

• Wide variety of sectors, mostly stable growth• Consumer products, healthcare, utilities, financials,

services.

Why Heirloom Stocks Are Desirable

• Dividend orientation, investor friendly• Commitment to shareholders in recessions• Strong incentive to maintain dividend in tough times– Track record takes 30 years to build

• Considerable protection against inflation– BUT: Examine financials case by case

• (assets are often not inflation-proof)

• Increasing dividend generally increases stock price• Dividend track record dictates conservative strategy– Management has to be managing for long term

Why Heirloom Stocks Are Desirable (2)

• Over 20+ years, high yield AND high overall return• Provides increasing income as well as capital growth• Most ratings are not excessive compared to S&P 500• Ideal retirement and legacy stocks• Never need to sell if co. maintains track record• One-decision stocks, no guessing games

How To Pick Heirloom Stocks

• 82 to choose from, with yields ranging from 0.8% to 11.3%– Don’t chase the really high ones, but 2% minimum

• Increasing yield over 30 years to 1% not very impressive or useful

• The key is to buy stocks that will maintain track record• 20 year dividend growth is a key number

– 2-3 times is barely inflation, 8-10 times is good and achievable• Ideally, inflation-proof business (banks aren’t, insurance is)• Look carefully at dividend cover• Don’t chase high P/E ratios• Check company’s own return on equity

- 15% to 20%, shows company can maintain superior returns

Examples of Heirloom Stocks• Procter and Gamble Co. (NYSE:PG)

– Increased dividend every year since 1954– Yield 3.0%, P/E 17.5– 8.2x dividend increase since 1993

• Emerson Electric Co. (NYSE:EMR)– Increased dividend every year since 1957– Yield 2.9%, P/E 20.4– 4.6x dividend increase since 1993

• 3M Company (NYSE:MMM)– Increased dividend every year since 1959– Yield 2.5%, P/E 16.4– 2.9x dividend increase since 1993 (CPI up 62%)

• Pitney Bowes Inc. (NYSE:PBI)– Increased dividend every year since 1982– Yield 11.6%, P/E 5.9– 3.3x dividend increase since 1993

Heirloom Stocks in Your Portfolio

• Ideal for retirement investors– Can be pretty confident dividend increases will beat inflation– If they cover expenses in year one, will go on doing so.

• Minimum yield only about 2%– 30 –year track record for 1% yield not very impressive– Either expensive or not paying out enough to shareholders

• Don’t trade them -- “Buy and hold”• Sell if they break track record of dividend increases

– That track record took 30 years to build up

• Look at valuations; optional trade high P/E for lower

Permanent Wealth Heirloom Stocks

• Portfolio will include four heirloom stocks with 30+ year track records

• Selected for solidity and dividend growth• Dividend growth should give us capital growth over

time• Buy and hold, long-term strategy• No stops, except we will sell if the company breaks

dividend track record• May occasionally swap for another if one gets

expensive

Permanent Wealth Heirloom Stocks (2)• Our first heirloom stock was in Tuesday’s Alert • Our second heirloom stock is in today’s presentation

– (More details on second in next week’s Alert)• Two more heirloom stock recommendations over next few weeks

1. Illinois Tool Works Inc. (NYSE:ITW)• Power systems, packaging, construction products, polymers and fluids• Increased dividend every year since 1963• 24.2% return on equity (in special year 2012)• Currently 2.5% yield, 10.2 P/E, but 12.9 forward P/E• Dividend increase 12.7 times since 1993• Next dividend $0.38 goes xd March 26

2. Medtronic Inc. (NYSE:MDT)• Device-based medical therapies worldwide• Increased dividend every year since 1978• 19.4% return on equity• Currently 2.4% yield, 13.2 P/E, 11.6 forward P/E• Dividend increase 29.5 times since 1993• Next dividend $0.26 goes xd April 3

Conclusion

• 30-year dividend increases are a very powerful statement

• Truly stocks you can leave to your grandchildren

• Ideal retirement stocks• Ideal “Base Builders,” for those familiar with

the Money Map Method• But over long term, can far outpace inflation