Category Archives: Dividend Growth

The Fourth Scenario For When Should I Transition From Capital Gain Investing To Dividend Growth Investing? – Seeking Alpha

The Fourth Scenario For When Should I Transition From Capital Gain Investing To Dividend Growth Investing? – Seeking Alpha: Introduction

An author, whom I consider a friend, Robert Allan Schwartz, recently penned an article describing his views on when young investors should transition from growth to dividend growth investing. In this article found here, he created a series of three scenarios and created a set of parameters from which to run them on. Although I felt that his parameters were reasonable, and his scenarios plausible, I also felt that they grossly underestimated the true power of what I would call a pure growth strategy. Frankly, I felt he inadvertently shortchanged the powerful performance capabilities that true growth stocks are capable of achieving.

Can Dividend Growth Investing Be Reconciled With Modern Portfolio Theory? – Seeking Alpha

Can Dividend Growth Investing Be Reconciled With Modern Portfolio Theory? – Seeking Alpha: For the past couple of years, an active discussion or debate has been going on between proponents of dividend growth investing [DGI] and proponents of modern portfolio theory [MPT]. I have been in the middle of some of those debates. I often wonder whether the two strategies for portfolio construction can be reconciled. I will state my preference up front: My primary investing strategy is a DGI strategy. I recognize that many readers will see this as biasing this article. I am sure that any mistakes, stereotypes, or misconceptions can be rectified in the comments section.

Dividend Growth Portfolio: 2012 Mid-Year Update – Seeking Alpha

Dividend Growth Portfolio: 2012 Mid-Year Update – Seeking Alpha: My Dividend Growth Portfolio (DGP) is a public portfolio that I created to illustrate the principles of dividend growth investing. I report on it periodically so that people can see how one person (me) executes a dividend growth strategy and what its results are.

The DGP’s main purpose is educational. Both myself and readers can learn from my good moves and mistakes. I use both hits and errors to tighten up the Dividend Growth Portfolio Strategy that I use to govern the portfolio. In addition to its educational goal, the DGP is an actual component of my retirement portfolio. It has my own real money in it.

Spring Cleaning My Dividend Growth Portfolio – Seeking Alpha

Spring Cleaning My Dividend Growth Portfolio – Seeking Alpha: I conduct formal Portfolio Reviews of my public Dividend Growth Portfolio (DGP) twice per year, in April and October. Here are reports of the past two reviews:

October 2011: “Dividend Growth Portfolio Semi-Annual Review: Pretty Boring Stuff… The Dividends Just Keep Increasing (Yawn)”
April 2011: “Dividend Growth Portfolio Review: Sherwin Williams Is Out”
The DGP contains real money and actual stocks, and it illustrates real decisions made in real time. Its purpose is to demonstrate how one person (me) executes strategies and tactics of dividend growth investing. You can see my successes and mistakes, form judgments on whether stuff make sense or not, and comment on whatever you think will help me or the dividend growth community.


The Most Common Stocks Held By Dividend Growth Investors – Seeking Alpha

The Most Common Stocks Held By Dividend Growth Investors – Seeking Alpha: I am researching an article on dividend growth stocks. I want to use a sample of the 30-40 most common stocks held by dividend growth investors. Please help.

Below I have listed 35 stocks that, from my reading, appear in a lot of dividend growth portfolios. This list is based on impressions from reading hundreds of articles and thousands of comments over the past couple of years.

Please scan the list and tell me if you agree. Should any stocks be removed? Do you want to nominate a stock I have missed?

Please note, I am not looking for reasons that a stock should be sold or bought. Rather, I am just seeking to verify or correct my impressions about which stocks are most widely in dividend growth portfolios. If a commenter suggests one that I missed, and the comment gets a few thumbs up, I’ll add it to the list, and similarly as to stocks suggested for deletion.


Abbott: Still A Dividend Growth Stalwart? – Seeking Alpha

Abbott: Still A Dividend Growth Stalwart? – Seeking Alpha: Last week Abbott Laboratories (ABT) announced that it plans to separate into two publicly traded companies around the end of 2012. One, retaining the Abbott name, will focus on diversified medical products. The other, “New Pharmaceutical Company,” will focus on research-based drugs. Both companies will be global leaders in their respective industries on the day they begin.

In the announcement, Abbott stated that the “two publicly traded companies will offer shareholders distinct opportunities given unique investment identities, business profiles and attributes,” and that the decision “builds on a decade of strategic and operational advancements.” Miles White, chairman and chief executive officer, stated


Dividend Growth Investor: Best Dividends Stocks for the Long Run

Dividend Growth Investor: Best Dividends Stocks for the Long Run

Best Dividends Stocks for the Long Run

In his book, Stocks for the Long Run, Wharton Professor Jeremy Siegel proves that stocks have been the best performing investing for the past 200 years in the US. Equities outperformed other assets classes such as gold and fixed income. Typically, stock returns are derived from price appreciation and dividends. Dividend payments have historically accounted for 40% of the average annual stock market return. A lesser known fact is that reinvested dividends have provided for 97% of historical stock market returns.

During tough market conditions such as the 2008 bear market, investors realize the positive of getting a return on your investment even if prices are collapsing across the board. Add in dividend increases, and several years down the road the income off the initial investment could be producing sizeable returns. Generalizations like this are usually ignored by investors however, as it doesn’t really provide a clear plan for action.

In order to respond to this I have included the best dividend stock for the long run. They come from many sectors and industries, and represent growing as well as maturing industries. The portfolio is not a recommendation to buy or sell any stocks, as it reflects my specific financial risk tolerance. Always do your own research before initiating a position in any financial instrument.

Consumer Discretionary

FDO Family Dollar Stores (analysis)
MCD McDonald’s Corp (analysis)
MHP McGraw-Hill Companies (analysis)
SHW Sherwin-Williams (analysis)
VFC VF Corp (analysis)

Consumer Staples

CLX Clorox Co (analysis)
KO Coca-Cola Co (analysis)
CL Colgate-Palmolive
KMB Kimberly-Clark (analysis)
PEP PepsiCo Inc (analysis)
PG Procter & Gamble (analysis)
SYY Sysco Corp (analysis)
WMT Wal-Mart Stores (analysis)
ADM Archer Daniels Midland (analysis )
HRL Hormel Foods Corp.


CVX Chevron Corp (analysis)
XOM Exxon Mobil (analysis)
BP British Petroleum (analysis)


AFL AFLAC Inc (analysis)
CINF Cincinnati Financial (analysis)
STT State Street Corp (analysis)
CBSH Commerce Bancshares (analysis)
CB Chubb Corp. (analysis)

Health Care

BDX Becton, Dickinson
JNJ Johnson & Johnson (analysis)
MDT Medtronic, Inc


MMM 3M Co (analysis)
EMR Emerson Electric (analysis)
GWW Grainger (W.W.) (analysis)
ITW Illinois Tool Works (analysis)
TFX Teleflex Inc (analysis)
UTX United Technologies (analysis)
DOV Dover Corp. (analysis)

Information Technology

ADP Automatic Data Proc (analysis)


APD Air Products & Chem (analysis)
VAL Valspar Corp (analysis)
NUE Nucor Corp. (analysis)


ATO Atmos Energy Corp
ED Consolidated Edison (analysis)
BKH Black Hills Corp.

Typically dividend investors are being told to hold stocks in certain sectors such as energy trusts, utilities and financials. I do believe however that concentrating ones portfolio only on certain sectors does increase your risk. Chasing current dividends yields is seldom the best plan for action. Overweighting certain sectors might also be a recipe for a financial disaster. Maintaining a balanced approach that focuses on dividend growth and yield, as well as the traditional tools like diversification and dollar cost averaging, could be the best strategy for the long run. Furthermore being flexible could also aid to your portfolio. Chances are that new sectors of the economy will emerge over the next few decades. Adding reasonably priced dividend achievers is one way to be involved in those stocks.

The dividend stocks for the long run portfolio is underweight in technology and telecommunications services, and overweight the Consumer Staples and Consumer discretionary sectors. It only contains one foreign based stock, BP. The average yield is 3.45%, whle the average five year dividend growth rate is 15.90%. If the long term dividend growth rate stays at 6% on average for the whole portfolio, the expected yield on cost will be around 7% in 12 years and 14% in a little over 2 decades. You could also check it from this link.

I will be tracking the following portfolio versus the market using marketocracy virtual mutual funds.

Full Disclosure: I have positions in ADM, ADP, AFL, APD, BP, CINF, CLX, ED, EMR, FDO, GWW, ITW, JNJ, KMB, KO, MCD, MHP, MMM, NUE, PEP, PG, SHW, STT, TFX, UTX, WMT,

Dividend Growth Investor: Highest Yielding Dividend Stocks of the S&P 500

Highest Yielding Dividend Stocks of the S&P 500

The S&P 500 is one of the most followed stock market index in the world. Mutual fund managers benchmark their returns against it, yet somehow studies show that the vast majority underperforms the index in any any given year. There are many ways to invest in the S&P 500, including mutual funds (VFINX), exchange traded funds (SPY) or even stock index futures. I benchmark my dividend incomeagainst the S&P 500. Many of the best dividend stocks in the world have a substantial weight in this important stock market barometer. With its average yield of 1.70% however, many dividend investors choose to ignore the index, and instead focus on its components.

It is interesting to note that 386 companies included in the index pay dividends. The average yield on those is 2.30%. Below I have highlighted the ten highest yielding dividend stocks of the S&P 500:

Altria Group (MO) engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. This dividend champion has raised distributions for 43 years in a row. The company has a forward dividend payout ratio of 76%. Yield: 6.10% (analysis)

AT&T Inc. (T) , together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide. This dividend champion has raised distributions for 27 consecutive years. The high dividend payout ratio, and the fact that the company is in a highly competitive industry cast a shadow on the sustainability of the distribution payment. Right now the dividend payout ratio is 72% based off forward 2011 EPS. If the acquisition of T-Mobile goes through, the payment of $25 billion dollars in cash could potentially jeopardize the current dividend. (analysis)

Frontier Communications Corporation, (FTR) a communications company, provides regulated and unregulated voice, data, and video services to residential, business, and wholesale customers in the United States. Between 2004 and 2010 the company paid a quarterly dividend of 25 cents/share. Last year however it cut the distribution rate by 25% to 18.75 cents/share. The company has been unable to cover its dividend out of earnings since 2006. More than two-thirds of its distributions are non-taxable as they are essentially a return of capital. Yield: 9.40%

Windstream Corporation (WIN), together with its subsidiaries, provides various telecommunications services primarily in rural areas in the United States. Since 2006 the company has paid 25 cents/share every quarter. Windstream has been unable to cover its dividends from earnings in every year since 2008. One the bright side cash flow from operations has been relatively stable, although the company has ramped up capex spending in recent years. Yield: 7.90%

CenturyLink, Inc. (CTL), provides a range of communications services, including local and long distance voice, wholesale network access, high-speed Internet access, other data services, and video services in the continental United States. The company is a member of the elite dividend aristocrats index, and has raised dividends for 37 consecutive years. In comparison to the previous two telecom players, CenturyLink has been able to cover its distributions from EPS, although its payout ratio is a scary 92.70%. Yield: 7.20%

Reynolds American Inc. (RAI), through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. The company has raised dividends for 7 years in a row. The company has managed to double EPS over the past decade, and raise dividends by 9% per year as well. The forward dividend payout ratio is 79.70%. Yield: 6.20%

FirstEnergy Corp (FE) is involved in the generation, transmission, and distribution of electricity, as well as energy management and other energy-related services. The company has maintained its dividend payment since 2008. It’s dividend payout ratio however is at 69.40%, which is sustainable for a utility company. Yield: 5.90%

Pitney Bowes Inc. (PBI) provides mail processing equipment and integrated mail solutions in the United States and internationally. The company is a member of the dividend aristocrats index and has raised distributions for 29 years in a row. Yield: 5.90%

Pepco Holdings, Inc. (POM) operates as a diversified energy company. It operates in two divisions, Power Delivery and Competitive Energy. The company cut dividends by 40% in 2001 to 25 cents/share, and has since raised them by 8& to 27 cents/share. Based off forward 2011 EPS, the payout ratio is over 85%. Yield: 5.80%

Lorillard, Inc (LO), through its subsidiaries, engages in the manufacture and sale of cigarettes in the United States. The company has paid a rising dividend since becoming a separately traded company in 2008. It yields 5.40% and has a high dividend payout ratio as well.

It is evident that the highest yielding stocks in the S&P 500 include sectors such as telecom, tobacco and utilities. All of the top ten companies have very high dividend payout ratios. This increases the risk of a dividend cut, as any decline in earnings would make it impossible to maintain the high distributions. Of particular concern are the telecom companies, since the cash cow businesses of telephones is a dying one. The cell phone industry is highly competitive and is becoming a basic commodity, since customers could expect similar levels of service, and similar prices as well. The only differentiator could be phones offered, but this is a short-lasting advantage, as new phones are introduced and it is impossible to tell which ones would be embraced by consumers.

The tobacco business is also in decline, as more people are starting to realize the health effects of smoking on their well-being. In contrast with telecoms however, tobacco companies have strong pricing power and a loyal customer base, which is addicted to its products. While taxes are raised each year on cigarettes, the levels of price increases that cigarette makers generate more than offsets the decline in consumption by customers. In addition, while there might be speculation that unfavorable court rulings could potentially make all tobacco companies bankrupt, this is highly unlikely. The taxes that tobacco products generate fill in government coffers with billions of dollars worldwide, and tax increases are favored by the electorate. It would be difficult to replace the tax revenues from tobacco products if they were banned.

Full Disclosure: Long MO

Dividend Growth Portfolio Review: Sherwin Williams Is Out – Seeking Alpha

The Dividend Growth Portfolio is a public “demonstration” portfolio to illustrate the practical application of principles that I use in dividend-growth investing. The portfolio contains real money and actual stock holdings. I publicly report on its results. That allows interested persons to see successes and mistakes, and to form judgments on whether the principles make sense and work in the real world. These articles let people comment on what they think about the principles, suggest improvements, and consider how my decision-making compares to what they would do.
I advocate semi-annual formal Portfolio Reviews. The reason is to establish a disciplined schedule of examining the portfolio, thinking about each stock, and taking appropriate actions. Formal portfolio reviews, along with paying attention to news about your companies on an ongoing basis, combine to create a buy-and-monitor habit that helps avoid the pitfalls of a more passive buy-and-forget approach.
All that said, this review is two months late, so there’s a blunder right there. Luckily, little or no harm was done by the delay.
Normally in dividend-growth investing, not much portfolio turnover is expected. Most stocks, once purchased, are held for a long time, ideally “forever.” But stuff happens, and during a Portfolio Review, each holding carries a burden of justifying its continued existence in the portfolio. As explained more fully in the first “Portfolio Forensics” article cited above, some of the questions for each stock are:
  • What is its yield on cost (YOC)? The overall goal in this portfolio is to attain a YOC of 10% within 10 years of its creation in 2008. To get there, each stock must progress steadily via annual dividend increases. Price gains are nice but don’t help toward the central goal. Stocks that began with higher initial yields do not have to progress as fast to make it to the finish line on time, but they still need to advance. The formula for YOC is: Yield on Cost = (Current Yield x Current Price) / Acquisition Price. In other words, it is the yield on your cost.
  • Should some profits be taken? If the company’s price has skyrocketed, that may present an opportunity to cash out some or all and purchase another stock selling at a better valuation and offering a higher yield.
  • Is the safety of its dividend in question?
  • Is there a chance to improve the portfolio by making a stock swap or adding a new position? Improvements can be made along various dimensions, such as increasing the total dividend stream, diversification, or gaining a higher expected rate of dividend growth.
  • Has the dividend growth rate taken a turn for the worse? Is the stock no longer on track for reaching the 10%-in-10-years goal?
After the last review in August, 2010, I made decisions to sell three stocks: Diageo (DEO) because of an inconsistent pattern of dividend increases when translated to U.S. dollars; Emerson Electric (EMR) because of slow dividend growth; and Royal Bank of Canada (RY) because it froze its dividend. Those sales produced about $5800. I added about $600 in accumulated dividends, and used the proceeds to make two purchases:
  • Added to existing position in Alliant Energy (LNT) ($3490)
  • Initiated position in Johnson & Johnson (JNJ) ($2910)
The purchases have worked out great:
  • The Alliant Energy purchase is up 11% in price, and its YOC has already advanced to 4.9%
  • Johnson & Johnson has gone up 10% in price and its YOC stands at 3.8%
Here’s my current thinking on several positions in the portfolio.
Abbott Labs (ABT): I own three slugs, purchased in 2008, 2009, and 2011. (The latter purchase was made with accumulated dividends.) Their YOCs are 3.5%, 4.0%, and 4.0% respectively. The three slugs together make up 7% of the portfolio and have registered a tiny price gain. Abbott has already increased its dividend 9% for 2011 after a 10% increase in 2010. The stock is working fine. Decision: Hold
Alliant Energy (LNT): Two slugs, both purchased in 2010. They have a blended price gain of 13% and YOCs of 5.4% and 4.9% respectively. The position makes up about 10% of the portfolio. Alliant has already announced a dividend increase of about 8% for 2011. Decision: Hold.
Johnson & Johnson (JNJ): Position initiated in 2010 has worked out well so far: Up 10% in price and yielding 3.8%. This position makes up about 6% of the portfolio. The company increased its dividend 9% in 2010 and has not declared its increase for 2011 at this time. I do not expect JNJ’s well-publicized operational screw-ups and product recalls to have a long-term impact on the company. I believe the company will fix the problems.Decision: Hold.
Kinder Morgan Energy Partners (KMP): Purchased in 2008, KMP comprises about 8% of the portfolio. It is up 30% in price and YOC has reached 7.9%. Kinder Morgan Energy usually increases its distribution more than once per year. In 2011, KMP has increased its dividend twice for a total of about 3% so far. This is working fine. Decision: Hold.
McDonalds (MCD): MickeyD’s has been a real all-star. Purchased in 2008 and again in 2009, it comprises 13% of the portfolio. Its blended price increase is 31% and the YOCs are 4.1% and 4.6% respectively (up from 3.7% and 4.1% last August). Typically raises its dividend with the year’s final payment; last December’s increase was 11%. Decision: Hold.
Sherwin-Williams (SHW): The room I am sitting in was painted with SHW paint and it looks great, but I am going to sell the stock. Last August, I noted that its dividend increases had been just 1% for 2009 and 2010. The decision then was to hold but consider selling next time if the dividend increases did not improve. “Next time” is now. SHW’s increase for 2011 came in at 1% again. Its current yield is only 1.7% (which would not qualify it as a new purchase), and my YOC is only 2.5%. This was one of the portfolio’s original holdings in 2008, and it comprises 10% of the portfolio, but its time is up. It is unlikely that its YOC will reach anything close to 10% in the next six years. The good news is that I have a 47% price gain, so I will have about $5000 to deploy elsewhere. Decision: Sell.
The Dividend Growth Portfolio’s other holdings are Chevron (CVX), Realty Income (O), Pepsico (PEP), AT&T (T), and Telefonica (TEF). Without going into the details, the decisions on all of those are to continue holding. The unweighted simple average YOC of all of the portfolio’s holdings is 4.8%, up from 4.6% last time. The purchase of replacement(s) for SHW will probably hold the portfolio’s YOC at about the same level or improve it slightly. More importantly, they will position the portfolio for better future advances, since I will be looking for stocks with dividend increases better than 1% per year.
I am compiling a new Shopping List based on my e-book, Top 40 Dividend-Growth Stocks for 2011. Following normal practice, I will update the information on candidate stocks, especially their yields, valuations and dividend growth rates, before making any purchase. I do not anticipate difficulty in finding a stock or two that will improve the portfolio’s makeup and performance over the long haul. Thanks to Sherwin-Williams for a good try, but you are outta here.
This is the fifth article in a series about my Dividend Growth Portfolio. Earlier articles in the series are:
Disclosure: I am long LNT, KMP, JNJ, MCD, ABT, SHW, CVX, O, T, PEP,TEF.

Additional disclosure: The position in SHW will be sold shortly and replaced with one or two other stocks.


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