Being an over-planner, I have come up with multiple portfolios with different stocks for a variety of scenarios. One of these portfolios actually seems perfect for this unprecedented time: my “Plan F Portfolio”. Because who would have predicted a total worldwide economic shutdown anyway?
It seems like only yesterday it was the end of March and it was action time. Stocks were cheap and economic growth was nowhere to be seen! UK economic activity is expected to shrink by 14% and interest rates are at a record low of 0.1%. I have to ask myself, where is the best place to put my money?
In line with fundamental investing principles, the “Plan F Portfolio” has to be diverse – eggs in one basket and all – and should consist of major players in their respective industries with strong balance sheets, secured earnings and a market-beating dividend. These are my three champions.
Dividend stock #1
The first dividend stock I am buying is GlaxoSmithKline (LSE: GSK), one of the most diversified pharma companies. It has strong revenue avenues and is expected to have modest growth in the future. GSK has two things I love in a company: a high dividend yield of 4.8% and a business that is more relevant now than ever. GSK’s vaccine business increased 18% year-on-year, which should ensure GSK keeps its strong balance sheet.
Next on my power play list is BAE Systems (LSE: BA), which trades in the aerospace and defence market. BA has high-quality revenue streams, and although some governments might look to cut down on military spending in the short term, in a recent market update BA announced it has a large backlog of orders. The backlog can sustain its operations in the long term, which is a great indication that future earnings are well protected. Coupled with its yield of 4.7%, I believe this makes for a great dividend stock to put your money in and ride the wave of uncertainty. BA is a great value play at its current price level.
Portfolio ‘lead man’
My superstar dividend stock of the “Plan F Portfolio” – and arguably one that should be part of any “A team portfolio” – is Anglo American (LSE: AAL). With a price-to-earnings ratio of 7.5% at the moment compared to the mining industry’s 7.8%, low debt to equity ratio of 32% and stellar balance sheet, AAL has the brawn but not the debt to wait out this storm.
Governments will be looking to support and boost their economies by investing in infrastructure projects. A crucial part of that is steel, giving AAL a nice post Covid jump-start. Once the storm passes, investors that jump in now should enjoy great capital appreciation but also a yield of 5.2%.
With those three dividend stocks, I think you should be able to come out on the other side smiling.
Miles Williams owns shares of Anglo American. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.