“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
— Warren Buffett
Today, there’s an opportunity for astute investors to buy a basket of wonderful companies at a fair price, and potentially grab a profit of 17% over the coming months.
This opportunity was brought to our attention by Jeff Yastine at Banyan Hill Publishing.
In a recent article, Jeff points out that Consumer Staples Select ETF (NYSE: XLP) hit a rare milestone earlier this month.
The consumer staples exchange-traded fund’s (ETF’s) dividend yield hit 3% in recent days.
Why’s that a big deal? Remember, dividend yields and stock prices go in opposite directions. In this case, the lower the ETF’s stock price, the bigger its dividend is to investors who buy at that price.
Here’s the important part…
The ETF’s dividend yield has only been this high — 2.75% or higher — four other times in the past decade.
In each of those times, the price of the ETF rose an average of 17% over the next four to five months. Check out the chart below, with the ETF’s dividend yield (the red line) transposed over its stock price (the black line):
If I put those circled yields in a table, this is how a stock purchase works out in the following months…
If you look at the top holdings of XLP, it’s loaded with the type of companies that Buffett loves to buy (and some he owns):
- Procter & Gamble.
- Philip Morris International.
- Costco Wholesale.
- CVS Health.
- Altria Group.
- Mondelez International.
- Colgate Palmolive.
These are stalwart, blue-chip stocks that Jeff calls “dividend-spewing, cash-rich companies selling everything from soap to soup.”
In an increasingly difficult environment to find anything approaching a “value” investment, Jeff has found an attractive opportunity.
Just like the Buffett quote at the beginning of the article, XLP gives an investor the change to own a basket of wonderful companies, secure a yield approaching 3% and have the opportunity to see a 17% gain in the next few months as the share price of XLP rises.
You can read Jeff’s article here.
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