Top Investment Picks for 2016

Top Investment Picks for 2016

As the new year rolls out, I decided that it would be a fun experiment to run and collect top investment picks for 2016. I reached out to the community of bloggers that I regularly interact with and asked them to participate in this collection.

The rules were simple: Pick one investment (either a stock or a fund or a commodity or any other form of investment), and present a short & quick investment reason behind the pick. Most bloggers I reached out to were happy to comply and shared their pick. I intend to present the data here in this post and track the investments over the course of 2016 on a regular basis (on a quarterly basis perhaps?).

Top Investment Picks for 2016

Before I present the picks, I would like to remind the readers that these are simply picks based on current outlook and each investor should perform due diligence before investing in any of the companies mentioned. Also, the investors I reached out to are long term investors, so I discourage readers to trade in and out of these investments based on the data presented here simply because it is their top pick at the moment.

Without further ado, here are the top picks from the blogging community for 2016.

A Frugal Family’s Journey: Wells Fargo & Co (WFC)

“With interest rates on the rise again, we like banks prospects for growth as profits should increasingly get easier as rates continue their long awaited climb”

Angry Retail Banker: Kinder Morgan Inc (KMI)

“This is a stock that’s been beaten down, and you know what they say to do when there’s blood on the streets (you buy stocks, not call the police because we’re not talking about actual blood. It’s an expression). Kinder Morgan has solid assets in terms of its pipeline network, is a bet on natural gas (which I think will one day replace oil as our primary fuel source), and is only indirectly connected to oil prices. Richard Kinder is a major shareholder and, as such, is committed to paying and raising that dividend. And the 75% dividend cut, meanwhile, shows me that they take the health of the business seriously and will make the neccessary short term sacrifices to ensure a safe dividend for years to come (rather than an oversized one today). It’s near it’s 52 week low. This may be a once in a lifetime chance to pick up a solid, high quality business at a ridiculously great value while it’s facing short term issues.”

Div4Son: Archer Daniels Midland (ADM)

“Great dividend history with dividend growth. The yield within the sweet spot and the price is currently pretty discounted. Not for everyone, but it should do well if you buy and hold.”

DivGro: 3M Co (MMM)

“With the bull market getting long in the teeth, I’m looking for extreme safety. Therefore, my pick is MMM, a Dividend Champion with 57 consecutive years of dividend increases. Yield is 2.62% and 5-year DGR is 10.9%. Dividend growth is accelerating and MMM can afford it — the payout ratio is only 53%. According to Morningstar, the company has a 4-star rating and trades about 6% below fair value ($160.00). On the other hand, S&P Capital IQ has a 3-star Hold recommendation, a fair value estimate of $126.80, and an A+ Quality Rating. If safe and boring is not your cup of tea and you’re looking for growth, SBUX and NKE seem to be great choices.”

Dividend Chimp: PureFunds ISE Cyber Security ETF (HACK)

“I’m super conservative and I stick with stocks with long track records of dividend increases for my investments, but for fun, if we are speculating for big gains, I would go with the area of cybersecurity taking off in 2016. HACK cybersecurity ETF provides diversification in the cybersecurity industry. More and more companies are attacked each year and this ETF has reached a 1 billion market cap in under one year showing that investors are very interested in the cybersecurity space.”

Dividend DiatribesStarbucks Corp (SBUX)

“Howard Schultz is the man! SBUX keeps growing the dividend too. They have recently added beer, wine, and delivery services. I do not think this company is going away anytime soon. I believe it will do extremely well again in 2016!”

Dividend Digger: Inter Pipeline Ltd (IPL.TO)

Very well priced for any dividend growth investor looking for value. Despite low oil prices, interpipeline still generates steady revenue through bulk liquid storage as they are one of the biggest independant tank storage business in Europe.”

Dividend Growth Investor: Schwab Strategic Trust (SCHD)

“If I had to select just one investment, I would have to pick an ETF or Mutual fund. I am big on diversification, which explains why. This ETF is a diversified portfolio consisting of 100 quality dividend payers such as ExxonMobil, Procter & Gamble, Johnson & Johnson etc.. Many of these equities have a track record of consistent dividend growth. This ETF yields 3%, is commission free at Charles Schwab and has a low expense ratio of 0.07%.”

Dividend Hawk: Emerson Electric Co (EMR)

“Hard to pick one, but I chose Emerson Electric. Short-term headwinds like stronger US dollar, growth slow-down in emerging markets and low oil prices have driven down EMR’s stock price. In my opinion there is much to like about Emerson Electric stock, 59 years of consecutive dividend increases, shareholder friendly management, in recent years EMR’s management has been restructuring significantly and also plans a spinoff of its Network Power operations in 2016. I expect double-digit total returns of a year.”

Dividend Lord: Gilead Sciences Inc (GILD)

Picking only one stock seemed overwhelming at first, but soon it became clear which I should choose. Firstly it should be from my actual portfolio. Is there any clearly undervalued stocks? Well, from my point of view at least, there is one. Gilead Sciences has shown excellent earnings for the short time I have been a shareowner. Yet the stock hasn’t really taken off. Resulting in forward P/E below 9. Company has very low payout ratio too, so they have a possibility to increase dividend significantly if they choose. Also this fits well my personal 2016 strategy, where investing in healthcare is one of top priorities.”

Dividend Wisp: Algonquin Power & Utilities Corp (AQN.TO)

“Year over year the growth of this company has been amazing. Consistent stream of new, long-term fixed contract renewable energy projects with a ~5% dividend yield. Divs paid out in USD gives additional benefits for CAD trading accounts. Wish I had bought more when i started out and it was at $7.50!”

44 thoughts on “Top Investment Picks for 2016

    • Because I expect 2016 to be a bad year, I think this portfolio will be down at the end of 2016. But with dividend growth investing, this doesn’t matter, does it? I think what matters is the dividend and if you reinvest the dividends back in those companies, then you are cooking something greater than just an EOY value, right? And in such case lower prices are better as you will be reinvesting cheaper.

      • Hi Martin,
        I have a similar feeling looking at all the signals from the world economy. We might have to go through a bad period before things get better. 2016 might be a bad year and taht is why I am keeping a decent amount of cash waiting for the right opportunities.

        Best
        R2R

  1. R2R,

    Thanks for taking out the time to compile this list! It will be interesting to see where everything stands by year’s end. I wish everyone a prosperous 2016!

    All the best!

  2. There are some interesting picks here. Thanks for including mine. I hold several other names on the list like JNJ, BNS, and SBUX. I think 2016 will be more positive than 2015. It looks like the markets are off to a bad start today, but we still have the rest of the year to recover. 🙂 Good luck to everyone.

    • I like your pick, Liquid. Its been on my watchlist for too long. Maybe 2016 will finally be the year RY joins my holdings. I own some of the ones present here – ADM, JNJ, BNS, SBUX are all my holdings 🙂

      Thanks for the participation
      R2R

  3. Looking forward to seeing how we all do! So far 2016 has not been nice to most of our picks. Lets hope they pick up from here, or if not we get some good cost averaging opportunities 🙂

  4. The Broke Dividend Investor says:

    Hi RM2R,

    I’m surprised no one chose WMT. At a starting yield of 3.2% and dividend increase pushing it to 3.3-3.4%.

    Plus if gas stays low WMT will see a huge boost. More cash to spend and lower cost of transporting goods = earnings beat

    • Hi BDI,
      Interesting choice. There is a case to be made for investing in WMT. If you’d like to be added to the list, let me know – you can msg me via email or on Twitter (DM) with your summary/comment for stock pick.

      cheers
      R2R

      • the broke dividend investor says:

        hi R2R, I don’t mind if I’m added or not but here is my quick and dirty opinion on why WMT will become the king of 2016.

        1) Beginning yield
        WMT is currently sporting a 3.2% yield (well yesterday today it’s 3.19%). This is the highest yield WMT has ever had in my search history. The negativism surrounding WMT is pushing it to extremes it has rarely if ever reached in its long history. So I want to remind people that this is a 3.2% yield of a consumer defensive cash cow in a chaotic market. As we’ve seen at the end of December people are running from high yield stocks, bonds, T bills, etc to safer high yield stocks. Sporting a 3.2% yield gives WMT plenty of space to grow while acting like a bond substitute.

        2) future yield
        I expect WMT to increase its dividend to $2.00/annual or $0.01 per quarter. Assuming a starting price of $60 this is a 3.3% yield or 3.27% with a $61 cost basis.

        3) earnings beat
        I believe WMT will post an earnings beat in 1 or 2 of its quarter this year. One of my biggest indicators is consumer confidence. Retail and spending is all based on the illusion of “good times” vs “bad times.” We like to think that shoppers make calculated decisions based on benefits and costs before buying an item but we all know shoppers shop on emotions. If the shopper believes the economy is going well they will spend cash like water. If they believe the economy is bad they will tighten their purse strings. Remember yourselves during 2008 compared to 2015. Consumer confidence (in the US) has been rising or in the positive range for many months now. It dipped in November but quickly rebounded in December. Retail is driven by the poor and lower middle class. Combine positive consumer confidence + rising wages and you’ll get a force to be reckoned with.

        Let’s talk about oil. WMT employs 6,000 trucks to ship all its goods around the US. “Since 2007, we’ve delivered 830 million more cases while driving 300 million fewer miles. That is an improvement of 84.2% over our 2005 baseline.” http://corporate.walmart.com/global-responsibility/environment-sustainability/truck-fleet. This improvement was during the height of the gasoline battle. Combine WMT trucks with the cost of shipping products by oil powered planes/boats and I see improved margins (albeit temporary).

        4) overall negative attitude
        This is my biggest reason. Look at a chart of WMT and you can see the falling knife. The Market, WMT, and all analysis expected WMT to fail. WMT’s margins are expected to decline, revenue and profit are both expected to crash, and there are some who would argue that WMT is overvalued at $60 and true estimate is near mid $40. Now what if WMT were to meet these lower expectations or even beat them by $0.01 eps? Pessimism will work in WMT’s favor. It’s hard for companies like Apple, Amazon, or Google to continuously beat crazy expectations but it will be easy for WMT to beat or match lower expectations. Apple is the biggest example of this. Once upon a time Apple destroyed low expectations. In its last earnings report Apple wasn’t able to do the same to higher expectations. What happened? Bye bye Apple.

        5) Technical
        In other words voodoo magic. Starting the year everyone crashed. Old time favorites; PG, CL, JNJ, KO, PEP, etc were taken to the woodshed. Only one big consumer staple survived the massacre and even became positive; WMT. If analyses are correct and this is the year of volatility you can see massive amount of money running away from traditional consumer staples and moving into the biggest house in the neighborhood; WMT. Even today WMT is rising while other consumer staples are lagging behind or negative.

        This is a quick and dirty analysis of why I believe WMT will become top dog of 2016. I expect WMT to rise at least 10% of its present value ($61). Combined with its dividend/forward dividend this would equal 13.3/13.27% return for 2016.

        • Thanks for sharing your top pick, BDI. I have added it to the spreadsheet. If you can send me a shorter version of your investment thesis, I can add it to the document. Thanks for participating.

          cheers
          R2R

          • The Broke Dividend Investor says:

            Sure thing R2R,

            I believe the negativity around WMT will create extremely pessimistic earnings expectations. WMT has some headwinds but the tailwinds of growing consumer confidence, rising wages, and cheap oil will propel WMT to beat one or two of its earnings. Combine with the escape of high yields due to increased interest rates and the desire for yield, WMT will become a safe haven for the chaotic 2016 trading session. At $61 or $60 entry point I expect a solid 13-13.5% rate of return

  5. What’s a fun and productive post. I really like this idea. You should do this every quarter. Financial bloggers are super smart, the elites among the elites.

    These are all great stocks. I’d check back at this list if we have some sort of crash. Since these stocks will go down with the market, but quickly recover.

    Happy new year!

  6. JCulley says:

    I don’t run a blog so I was kinda surprised to get the solicitation. I think 2016 is going to be another flat to down year so I want cash coming back at a greater pace than normal and at a higher rate. I think MAIN fits the bill perfectly so long as you get it below $29 and as close to $28 as it gets during the year (if it ever does again). I’ll take my 10% a year in cash this year.

  7. THE NORTH WEST COMPANY INC

    NWC.TO

    Sales increased 10.8 per cent to $458-million compared with $413.5-million in the third quarter last year

    Shares Issued 48,498,846
    Market Cap 1,366,212,000
    Annual Earnings/Share 1.39 CAD
    P/E Ratio 20.27
    Annual Dividend/Share 1.24 CAD
    Annual Dividend Yield 4.40 %

    • Interesting pick, Gaston. I am not familiar with NWC – although I just looked up the history and am familiar with some of their stores like Price Chopper & Giant Tiger.

      Thanks for bringing this to my attention
      R2R

  8. Great list! ADM popped up a good number of times. I think that Angry Retail Banker guy really knows his stuff, though. I’m going to make sure to follow that guy’s blog (along with Roadmap2Retire, of course).

    I’ll have to check out FUL, as I’ve been binge-reading Simply Safe Dividends like it was a Netflix series or something. I’m seeing companies on there that I’ve never heard of.

    Thanks for putting out this list, and getting the rest of the bloggers involved.

    Sincerely,
    ARB–Angry Retail Banker

    • Hahha…yeah that ARB guy sure has some interesting stories and recommend following and reading the blog.

      I had to look up FUL as well and I didnt know about the company. Interesting choice from SSD – who is putting out some great articles.

      Best
      R2R

  9. There are definitely a few great names in the list. A good think tank and something to chew on when deciding in which stock to invest. Could be a good startup for new investors who just start investing this year.

    Although I deem the EOY value unimportant, let’s see where this portfolio ends 😉

  10. Hi R2R,

    Thanks for including me, I’m really looking forward to seeing how this pans out. It’s a great way to bring our community together as well as share our ideas. Good luck to everyone’s picks – I imagine we all have money invested in the chosen pick.

    Tristan

Leave a Reply

Your email address will not be published. Required fields are marked *