Dividend Growth Investments for February 5th
Good Morning,
I wanted to let you know that I scooped up shares in two existing positions this morning. Both companies have been beaten down over the past year. Both companies seem to face some short to intermediate term headwinds. Both companies are consumer staples.
But I believe that both companies also have the history of being adaptable and resilient to change, to the point of overcoming it. They also sell products around the globe, and have strongly recognizable brands, which carry a premium pricing. They also sell everyday consumables, which are not that expensive on an individual basis, despite premium pricing. That premium is versus the generic version of them.
These companies do face some familiar headwinds, such as the weight loss pills being popularized over the past year or two or so. I have seem to have undersestimated those so far and their impact.
They do have some headwinds related to input cost inflation, though they are higher for one of the companies, over the next.
That being said, I do believe that while there are risks involved today, they are also priced in as well. If those risks are overcome, then we may continue to enjoy the stream of rising dividends, fueled by growth in earnings per share.
If they are not, then we'd see things like dividend freezes (aka when dividend is left unchanged for a while), and possibly a dividend cut. That would be my exit plan. However, I would also limit my exposure at cost to $1,500 - $2,000 in each, so as to prevent myself to putting too much money into a bottomless pit. In other words, with this risk management strategy, my individual losses are capped to what I invested in, minus any dividends received and allocated elsewhere. It is further capped on an individual basis, and on a portfolio basis, because I own more than one company. But my potential for upside (dividends + capital gains), is potentially unlimited.
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