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, more than doubling in that time. I expect an increase of around 20% in 2013 compared to 2012.
A second goal of the DGP is to generate acceptable total returns. The Portfolio is up 51% in total value since inception, which is a little more than an investment in the S&P 500 for the same period.
DIVIDEND GROWTH PORTFOLIO BACKGROUND
The Dividend Growth Portfolio is a real portfolio with real money. It was created June 1, 2008. It is not a hypothetical nor "cherry-picked" portfolio selected with 20-20 hindsight. It has been managed 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 new money has been added to the portfolio since its creation.
The DGP exists for demonstration purposes only. I do not suggest or recommend that anyone exactly follow my purchases or sales. I do not present it as "best."
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.
DETAILED REPORT CARD
(1) Generation of reliable and growing income stream:
With 11 months of 2013 in the books, this portfolio is having a terrific year. I project that this year's dividends will exceed 2012's by 20%.
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 $2610 [projected] 20% [projected] Next 12 months $2765 [projected]
E-Trade's Income Estimator projects a total of $2610 in dividends for calendar year 2013. That means that the dividend stream in 2013 will increase by about 20% over 2012.
As we are near the end of the year, this projection is probably very accurate.
Much of the increase comes from increases in the dividends themselves. The income stream also grows as a result of reinvested dividends that buy more shares of stock. Two such reinvestments were made in 2013. The next one will probably come in January, 2014.
(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 toward the eventual goal of 10% in 2018. Please also note that these results are achieved without adding any new money to the portfolio since it was created.
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 $2610 [projected] 5.6% [projected] Next 12 mo. $2765 [projected] 5.9% [projected]
2018 Goal $467810.0%
"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; it does not anticipate any dividend increases that have not been announced; and it does not project dividends for shares that will be purchased in the future with reinvested dividends.
As the months pass, dividend increases are announced and new shares are purchased, so the projections tend to increase as time goes by.
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 rises steadily, because the "original price" in the equation yield on cost = dividends / original price is fixed at $46,783. But the numerator (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 to be announced in the rest of 2013 or in 2014 are not yet included in the Estimator's projections.
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 at the end of 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 10% to 15% range each year.
(3) Portfolio reviews:
I recommend conducting two formal strategic "Portfolio Reviews" per year.
Under the rules governing this portfolio, when the accumulated cash from dividends reaches $1000, the cash is 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.
I made my first dividend reinvestment of 2013 in March, purchasing shares of Lorillard. This was a new position, thus diversifying the portfolio a little. I am in the midst of a program to diversify the portfolio and thus spread out my risks.
In August, I used accumulated dividends to purchase shares of Phillip Morris. This is also a new position, further diversifying the portfolio.
I believe that completes dividend reinvestments for this year. I expect that accumulated dividends will reach $1000 in January, 2014, at which time I will reinvest them.
(5) Stocks (16) held in the Dividend Growth Portfolio as of December 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)
Phillip Morris (PM)
Shaw Communications (SJR)
Cash ~1%. This is the cash accumulating from incoming dividends. The total currently stands at $834.
Trades made in November, 2013: None.
(6) Trades made in 2013:
2/11/2013: Sold 33 McDonalds--rebalancing portfolio
2/11/2013: Sold 43 PepsiCo--rebalancing portfolio
2/11/2013: Bought 66 Darden Restaurants (new position)
2/11/2013: Bought 123 Omega Healthcare Investors (new position)
3/18/2013: Bought 25 Lorillard (new position)--reinvestment of dividends
8/16/2013: Bought 12 Phillip Morris (new position)--reinvestment of dividends
(7) 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.
Portfolio on origination date: June 1, 2008: $46,783
S&P 500 at origination date: 1400
Current value of portfolio (December 1, 2013): $70,580 (+51% since inception)
Current value of S&P 500: 1806 (+29% since inception...price only)
Total return comparison: With dividends reinvested, an ETF that tracks the S&P 500 (ticker symbol = SPY) has returned about 47% since June 1, 2008 (source: ETFreplay.com). Therefore, with total returns of 51%, the Dividend Growth Portfolio has delivered about 9% more in total returns than the ETF that tracks 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 long time frames. That said, total return is not the main goal of this portfolio.
The 2013 edition of my dividend-growth e-book, TOP 40 DIVIDEND GROWTH STOCKS FOR 2013, was published last January. For complete information, please click on the cover image to the right.
IMPORTANT NOTE: I anticipate that I will publish the 2014 edition (the 7th edition) in mid- January, 2014. For updates on the progress of the new edition, please see my SensibleStocks.com blog.
Dedicated to the success of the individual investor