Dedicated to the success of the individual investor
Dividend Growth Portfolio Strategy
For illustrative and demonstration purposes, I maintain a public, real-time, real- world, real-money Dividend Growth Portfolio (DGP).
I created the portfolio in 2008, and I maintain it according to a high-level document that I call its "constitution."
The strategies come straight from the annual eBooks that I have written since 2008. I have modified the constitution each year as part of a routine annual process of reviewing and updating the portfolio's strategies and procedures every year.
The DGP's performance is tracked monthly. Click here to see the latest report on the DGP's results.
Below is the current version of the DGP's constitution as amended January 15, 2014.
The Constitution for My Dividend Growth Portfolio
The goal of my Dividend Growth Portfolio is to generate a steadily increasing stream of dividends paid by excellent, low-risk companies. The numerical target is for the portfolio to deliver 10 percent yield on cost within 10 years of inception. I am more interested in the ability of this portfolio to produce income than its sheer size.
• Use the current Top 40 as my shopping list. The list may be modified during the year by adding or dropping particular stocks after thorough analysis using the Easy- Rate™ system. • Buy only stocks with “Fair” or better valuations. • Reinvest dividends, but not automatically back into the company that issued them. Rather, when the cash accumulates to $1000, select the best candidate at that time to buy. • When reinvesting dividends, try to improve the portfolio along one or more dimensions: yield, dividend growth, diversification, and the like. • Shoot for an eventual total of 20 to 25 stocks in the portfolio. • Aim for well-roundedness in the portfolio. Diversify across sectors, industries, geographies, and different ranges of yields and growth rates. • Hold no more than 15 percent of the portfolio’s value in a single stock. Rebalance the portfolio when necessary to redress excessive size that may have developed in a particular holding. There is no minimum size requirement. • Make opportunistic switches from one stock to another if such a swap will upgrade the portfolio. The expected frequency of such exchanges is low. • Since the major focus is on dividends and not share prices, the portfolio will usually be 100% invested except for accumulating dividends. • Aside from the maximum size limit, be agnostic on position sizing. Initially, investing an equal initial amount in each stock is fine. Adjustments in proportionate sizes will occur as prices change, dividends are reinvested, and sales are made in the normal maintenance of the portfolio. • Investigate and seriously consider selling any stock for these reasons:
(1) It cuts, freezes, or suspends its dividend. (2) It bubbles or becomes seriously overvalued. (3) You receive news of significant changes impacting the company. (4) It is going to be acquired. (5) It announces plans to split itself or spin off a separate company. (6) Its current yield rises above 9 percent or drops below 2.5 percent. (7) It underperforms the market in total returns (price + dividends) for three years running. (8) Its size increases beyond 15 percent of the portfolio.
• Conduct a thorough Portfolio Review twice per year. • Review this constitution at least once per year and amend it when deemed appropriate.
Strategies and Practices Not Used:
• Margin. • Shorting. • Options, futures, or other derivative investments. • Mutual funds or ETFs. • Trailing sell-stops. Exception: If I have determined to sell a stock and it is in a price uptrend, I may use a tight trailing sell-stop to milk capital gains out of the stock before selling it.