This Dividend Growth Portfolio (DGP) exists to demonstrate the results that can be achieved by following sound dividend growth investing principles.
The main goal of the DGP is to generate reliable growing dividends. The dividend stream has increased each year since the Portfolio was created in 2008. In 2012, the Portfolio's dividends exceeded 2011's by about 11%. I expect an increase of more than 17% in 2013.
A secondary goal of the DGP is to generate acceptable total returns. The Portfolio is up 50% in total value since inception. It has beaten the S&P 500 Index since its inception.
DIVIDEND GROWTH PORTFOLIO BACKGROUND
The Dividend Growth Portfolio is a real portfolio with real money. It was created June 1, 2008.It isnot a hypothetical nor "back-tested" portfolio selected with 20-20 hindsight. It has been running in real time with real money since its creation.
It resides at E*Trade.
The opening amount on June 1, 2008 was $46,783. No money has been added or removed since creation, except for dividends received.
The DGP exists for demonstration purposes only.I do not suggest or recommend that anyone exactly follow my purchases or sales.Everyone should lay out their goals and objectives, which may be different from mine.
The DGP's primary goal is to achieve a 10% yield on cost within 10 years. In other words, I want the Portfolio to generate $4678 in annual dividends by 2018. Note that a 10% yield on cost would mean that the Portfolio was outperforming the historical total return of the market via dividends alone by 2018.
DETAILED REPORT CARD
(1) Generation of reliable and growing income stream:
2013 is off to a good start, with projections that this year's dividends will exceed 2012's by 17%.
Here is a table of the dividends produced each year by the Dividend Growth Portfolio:
Year Dividends Received Increase from Prior Year 2008 $ 998 2009 $1568 57% 2010 $1799 15% 2011 $1960 9% 2012 $2179 11% 2013 $2542 [projected] 17% [projected] Next 12 months $2627 [projected]
As of the beginning of May, 2013, E-Trade's Income Estimator projects a total of $2542 in dividends for calendar year 2013. That would suggest that the dividend stream in 2013 will increase by about 17%.
This projection probably underestimates what the actual total will be. Hopefully, the number will rise as companies raise their dividends throughout the year, and as I add shares to the Portfolio by reinvesting dividends. (One such reinvestment has already been made in 2013.)
(2) Achieving goal of 10% yield on cost within 10 years:
As dividends are increased and reinvested, the yield based on the original investment rises. This is known as yield on cost. As stated earlier, the principal goal of the Dividend Growth Portfolio is to achieve a yield on cost of 10% within 10 years of inception.
Here is the same table of dividends as above, except the last column shows each year's yield on cost. Note how the rising dividends each year keep the yield on cost marching higher every year toward the eventual goal of 10% in 2018.
Year Dividends Received Yield on Cost 2008 $ 998 2.1% 2009 $1568 3.4% 2010 $1799 3.8% 2011 $1960 4.2% 2012 $2179 4.7% 2013 $2542 [projected] 5.4% [projected] Next 12 mo. $2627 [projected] 5.6% [projected]
"Projected" means that the forward dividend stream is estimated based on the most recent dividend payout rates. The projection assumes that no stock will cut its dividend, but it does not anticipate any dividend increases that have not been announced.
As the months pass and dividend increases are announced, the projections will probably increase.
The numbers through 2012 are actuals. You can see how the dividend stream from the Portfolio has gone up each year.
Mathematically, yield on cost goes up steadily, because the "original price" in the equation yield on cost = dividends / original price is fixed at $46,783 (the original amount in the portfolio). But the "dividends" in the equation increase over time for three reasons:
Companies increase their dividends. The Estimator accounts for dividend increases as they are announced by each company. Therefore, dividend increases stillto be announced in 2013 are not yet included in the Estimator's projection.
Additional shares to be purchased with reinvested dividends will pay dividends themselves. Until the new shares are purchased, the Estimator does not know about them.
Other changes may be made to the portfolio--such as swaps into higher- yielding stocks--that will increase the dividend stream. Again, the effects of these changes are not known to the Estimator until they are made.
Thus, actual dividends to be received should be greater than those currently projected for the three reasons just stated.
Note on the dividends in 2008: Because I created the Portfolio during the first half of 2008, the dividends for 2008 are less than they would have been for the entire year. That accounts for the low 2.1% yield on cost for 2008, as well as the high 57% jump in dividends from 2008 to 2009. Later years are more representative of what one may expect in annual dividend increases. Growth rates will usually be in the 7% to 10% range.
(3) Portfolio reviews:
I recommend conducting two formal strategic "Portfolio Reviews" per year. In 2012, reviews were completed in April and October. I am slightly overdue for the review for April, 2013. I expect to complete it in May. Here are articles about the two 2012 reviews:
The October review is discussed in this article: Dividend Growth Portfolio: Semi- Annual Portfolio Review. The highlight of the review was the sale of long-time position Abbott Laboratories (ABT) because of its break-up into two companies. I used the cash from the Abbott sale to start new positions in BHP Billiton and Hasbro, plus added to an existing position in Intel.
The April, 2012 review is discussed in this article: Spring Cleaning My Dividend Growth Portfolio. Among the subjects discussed are the swap of a stock that had cut its dividend; the pending split of Abbott into two companies; and the high valuation (and therefore low current yield) of McDonald's.
I published an article in February, 2013 describing a couple of changes that I made to this portfolio as part of a program to make it more diversified. I trimmed positions in two stocks (McDonald's and PepsiCo) and used the proceeds to start positions in two higher yielding stocks (Darden Restaurants and Omega Healthcare Investors). The changes created immediate boosts to the dividendstream, the Portfolio's yield, and its yield on cost. Read all about it here: Rebalancing My Dividend Growth Portfolio for Diversification and More Yield.
In March, 2013 I also made my first dividend reinvestment of the year. I purchased 25 shares of Lorillard (LO) on March 18. I reinvest dividends when they accumulate to $1000 in my account. There will be at least one more reinvestment later this year. Current cash in the account has grown to $217 since that purchase.
Under the rules governing this portfolio, when the accumulated cash from dividends reaches $1000, the funds are re-invested. The goal is always to purchase a stock that will improve the Dividend Growth Portfolio in some way. The purchase may be of more shares in a company already owned, or it may be used to initiate a position in a brand-new stock.
As mentioned above, I made my first dividend reinvestment of 2013 in March, purchasing shares of Lorillard. This is a new position, thus further diversifying the Portfolio, which I am doing as part of a deliberate program to make it less concentrated.
(5) Stocks (15) held in the Dividend Growth Portfolio as of May 1, 2013:
Alliant Energy (LNT)
BHP Billiton (BBL)
Darden Restaurants (DRI)--New position begun in 2013
Johnson & Johnson (JNJ)
Kinder Morgan Energy Partners (KMP)
Lorillard (LO)--New position begun in 2013
Omega Healthcare Investors (OHI)--New position begun in 2013
Realty Income (O)
Shaw Communications (SJR)
Cash <1%. This is the cash accumulating from incoming dividends.The total currently stands at $217. I will let it build up to $1000, then make another purchase. Reinvestments can used either to purchase more shares of a stock already owned or to start new positions.
Trades made in April, 2013: None.
(6) Total performance since inception:
As stated earlier, I believe that the most important metric for a dividend growth portfolio is its ability to generate reliable and growing income streams. That is because the eventual goal of most individual dividend growth investors is to fund their retirement with steadily growing income.
But a secondary metric of interest is total return. Here is the total performance of the Dividend Growth Portfolio. It has beaten the S&P 500 since inception.
Origination date: June 1, 2008: $46,783
S&P 500 at origination date: 1400
Current value of portfolio (May 1, 2013): $70,343 (+50% since inception)
Current value of S&P 500: 1558 (+14% since inception)
Performance vs. S&P 500: Since inception, the Portfolio's total-return performance has been about32% better than the S&P 500. This out-performance is consistent with many studies that show that dividend-growth stocks "beat the market” in total returns over time.
The 2013 edition of my dividend-growth e-book, TOP 40 DIVIDEND GROWTH STOCKS FOR 2013, was published in January. For complete information, please click on the cover image to the right.
Dedicated to the success of the individual investor