Follow the dividend investment decisions of a person who has no background in financial investment and wishes to take control of their financial future.

Minimum Growth Rate - 27 Nov 2013 13:10

Tags: growth inflation

One screen for dividend growth stocks is the percentage growth rate. But. what happens if a stock (after you purchase) fails to increase at your preferred rate?

Most DGI folks have rules when to sell, usually if a company decreases or eliminates a dividend or even fails to increase a dividend (0% growth). But what if the dividend only grew 3%, you planned on 7% and you still like the business, do you sell?

In this case I actually use two rules, the first is to hold the stock for an additional year (sometimes two depending on circumstances) and see where the dividend growth moves from there. Every stock is bound to have a bad year and most growth rates are based on averages so a 3% one year may result in a 15% gain the next giving you an average of 9%. You must be flexible to accommodate for averages.

The second rule I have is to establish a minimum growth rate. Your selected growth rate is usually a preferred rate and may not always be achievable especially if the economy is on a slow growth path. So again to remain flexible you should have upper and lower limits for dividend growth.

To calculate a minimum growth rate for my portfolio I use a percentage based on the average U.S. inflation rate over the last 10 years plus 2%. A problem I have with yearly inflation rates is that they are averages. Inflation rates fluctuate from month to month so for my calculation I use the "Max" inflation rate for each year. Based on this theory my minimum growth rate stands at 5.6%. If a stock cannot maintain this rate it becomes a candidate for a potential sell (note that I said "potential").

Year Ave Max Min Div Growth (Max+2%)
2013 1.51% 2% 1% 4%
2012 2.08% 2.9% 1.4% 4.9%
2011 3.16% 3.9% 1.6% 5.9%
2010 1.62% 2.6% 1.1% 4.6%
2009 -0.35% 2.7% -2.1% 4.7%
2008 3.85% 5.6% 0.1% 7.6%
2007 2.86% 4.3% 2% 6.3%
2006 3.23% 4.3% 1.3% 6.3%
2005 3.38% 4.7% 2.5% 6.7%
2004 2.68% 3.5% 1.7% 5.5%
2003 2.27% 3% 1.8% 5%
10 Yr Ave 2.39% 3.59% 1.12% 5.59%

This second rule is for my overall portfolio. If I see my portfolio of stocks not meeting this growth rate I begin the search for new "buys" while reviewing my list for potential "sells". That said, I may have some stocks with a growth rate of 2% and others at 12% as long as the portfolio dividend grows between a min 5.6% and a preferred 7.2% annually then life is good. - Comments: 0

Watch List Updated (finally) - 25 Nov 2013 22:19

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After all of my recent purchases my watch list was becoming woefully useless so with a little elbow grease it has been cleaned up.

First to go were companies I already purchased like Chevron, PPL, and General Mills, which I still have sights on buying more General Mills.

Second to go were sector stocks I no longer needed. After evaluating my diversification I eliminated energy stocks HP, Exxon Mobil, and Sunoco Logistics.

The last set of stocks to go were items that became just too pricey. First up was Sturm-Roger which went crazy from August to October as its price shot from $52 to $77 per share a whopping 48% jump made this a tad pricey. The last stock to be removed was Meredith Corp. which went from $42 to $52 a share in just two months. A 28% jump for an industry I think is in a slow death spiral made me lose my appetite.

Quite a few removals but a few were added to address some diversification concerns (desperately needed some industrials) so Cummins and Union Pacific were added. A long term prospect I have my eye on was also added so say hello to Steris Corp. Yes the dividend yield on the new additions are below my 3% requirement but for the diversity it will make sleep a little better at night. - Comments: 0

Dividends = Pride of Ownership - 23 Nov 2013 16:05

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While I love the steady and rising passive income from dividends it is not my favorite aspect of dividend investing. What I enjoy most is that being able to receive a dividend validates me as both an investor and business owner.

When I was in High School it was mandatory to take a basic financial class. The class focused primarily on income, debt, and budgeting. Near the end of the class we were introduced to the different saving/investments available and one of those instruments were common shares of stock. Though we were not taught how to analyze a stock we were given the basic definition that it was an investment in exchange for a percentage of company ownership.

Dividend investing has reminded me of that basic definition I learned many decades ago. It validates my ability of understanding a company (both financially and business wise), making a sound investment, and feeling the pride that I am a part business owner in some of the biggest corporations. This is much different than trying to speculate if a stock price will rise or fall of which I was mediocre at.

Being an owner in a company I expect to financially share in a company’s success (as should any owner). Dividends are what meet my expectation of wealth sharing. Why more shareholders of companies do not share this view is really mystifying. If a friend or relative asks you to invest in their new business idea the first question you would ask is "What is in it for me?" If the answer is anything less than XX% of profits you would send them packing.

Investing via stocks is no different than investing in your friend or relatives business idea. Owning stock in a company that shares wealth makes you the ultimate silent partner in a business and as the business is more successful the more wealth is shared with you. How can you not love this? - Comments: 0

Impulse Buy - 09 Nov 2013 22:38

Tags: ensco esv

Last week I did something out of character. Normally I track a potential stock on a watch list, tear apart its annual report, and monitor its performance over time before I make a buy decision. Instead I made an impulse buy and bought a small position (20 shares) in Ensco PLC (ESV). This purchase completes my diversification with energy and has increased my annual dividend by $60.

ESV is a contract drilling company based in the U.K. that specializes in offshore drilling contracts. Their financials are strong but historical consecutive dividend increases were weak with only 3 consecutive years. After the market close on 11/5, ESV announced a 50% dividend increase increasing their annual dividend yield to just over 5%.

Originally I had been tracking and targeting Helmerich & Payne (HP) as my last energy investment but its stock price shot up from $66 to $78. Out of fear that ESV could do the same I placed a buy order on the next market open.

After having time to tear apart the annual report I now feel confident about my purchase. Yet, I was surprised at how quickly I assessed the stock and made an impulse decision and this was a bit troublesome. On the positive side it was limited to a small investment but would I do it again in the future? I honestly do not know. Assuming I may, I will need to adjust my appetite in relation to risk for these types of purchases so I am adjusting my rules that any impulse buy must be limited to small purchases of $1,000 or less. - Comments: 0


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