Tired of Hearing About the Fed and China — I’ll Take a Little Bit of This and a Little Bit of That

Every day we continue to get the same old questions driving the financial news – will the fed increase rates and how bad is China’s economy? If our markets can’t handle a minor rate adjustment, then we have bigger problems than China. Interest rates are already near 30-year lows, so I seriously doubt that will have a major impact on business. What needs to happen is for the markets to be allowed to function normally without everyone thinking the Federal Reserve’s job is to keep the party going. If it’s time for rates to increase, it’s because the economy is improving! If the stock market wants to decline, so be it!

I’m sure a little higher rate would be welcome news for savers. They would not have to rely solely on riskier assets to increase their income and a decline in the market would give investors an opportunity to add to their holdings. As investors, I believe the real advantage we have over the hundreds of thousands of geniuses in this business, is time and patience. The geniuses need to make money in the short term to keep their jobs – you don’t. You are free to focus on building a world class portfolio that will provide a growing source of income while protecting you against the rising costs of living. That’s it!
Historically one of the very best ways to do that is to own a portfolio of financially strong companies, which provide a service or product the public needs and wants. Below, I have highlighted a few such businesses:

  1. Exxon — one of only a few ‘AAA’ rated companies is now paying a 4% dividend thanks to its significant price decline. Exxon will weather the current storm and you get paid nicely while you wait for prices to eventually move higher – I seriously doubt there will be a lesser need for energy five or ten years from now.
  2. Johnson & Johnson — also rated ‘AAA’ is paying a 3.25% dividend and concentrated in pharmaceuticals, consumer health products and medical devices — all likely to be in much greater demand in the future.
  3. Procter and Gamble — think household products such as Tide, Charmin, Pampers or Gillette razor blades. Paying nearly a 4% dividend and in the early stages of a laser focus on its top brands, this ‘AA’  rated company should be nicely higher by the time men decide they are tired of looking like they forgot to shave.
  4. Coca Cola — the largest nonalcoholic beverage company on the planet is sorely in need of a drink. Yet with a dividend yield of 3.50%, this ‘AA’ rated giant should be in much better shape in a few years thanks to a steady diet of costs cutting and healthier product offerings.
  5. General Electric — no one is working harder than CEO Jeffrey Immelt these days. After inheriting a highly leveraged financial business from Jack Welch, Mr. Immelt is selling everything not directly related to GE’s portfolio of world class industrial businesses. With a current dividend of 3.75% and significantly stronger balance sheet, this industrial powerhouse should continue to steam ahead.

As you can see from a few of the above examples, there are opportunities to own great businesses at reasonable prices. While the broad market is certainly not at bargain basement levels, all of the companies mentioned above are being offered with dividend yields near their 20-year highs!

Regardless of what the Federal Reserve or China does in the near term, sometimes it makes sense to add ‘a little bit of this and a little bit of that’ for the long term.

The information contained herein does not suggest or imply and should not be construed, in any manner, a guarantee of future performance and/or investment advice. Past performance does not guarantee future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended and/or purchased by Burgess Investments), or product made reference to directly or indirectly on this newsletter or company website, or indirectly via link to any unaffiliated third-party website, will be profitable or equal to corresponding indicated performance levels. Returns are historical and based on data believed to be accurate and reliable. We believe the above information is reliable and true but cannot guarantee its accuracy.
David Burgess