Blue-Chip Dividend Stocks With No Margin Of Safety

One of the things that makes investing so interesting is the fact that market prices are not always rational. The exploitation of this irrationality is the bedrock of Professor Benjamin Graham's life work. To apply that lesson to today's market, we should remember that even excellent businesses can become bad stock investments once they reach a certain price.

I love Hershey the business, but I do not like Hershey the stock. I like to make investments when I can stack the deck in my favor, and when the most optimistic scenario I can find involves waiting five years to turn a $91 stock into a $102 stock while collecting a 2% dividend, I'm not interested in starting a position. Realty Income (O), my favorite real estate investment trust. But when you look out five years ahead, the projections for Realty Income seem hard to justify. Coca-Cola (KO), PepsiCo (PEP), and Colgate-Palmolive (CL) are about 5-18% above their forecasted P/E ratios, which I would guess means this: if those companies grow earnings by 9-10% for the next five years, investors might experience total returns of 7-8% if those companies experience slight P/E compression.

Source: Seeking Alpha

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