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In a previous article, I looked at the Top Ten holdings of Vanguard's Dividend Appreciation Portfolio (VIG). As you'll see it's a handsome group of U.S. large cap companies.

Here are those ten companies with their current yield:

CompanyYield
Wal-Mart (WMT)2.10%
Coca-Cola (KO)2.75%
IBM (IBM)1.77%
Chevron (NYSE:CVX)3.24%
PepsiCo (PEP)3.12%
Procter & Gamble (PG)3.20%
Exxon Mobil (NYSE:XOM)2.52%
United Technologies (NYSE:UTX)2.77%
McDonald's (NYSE:MCD)3.52%
3M (NYSE:MMM)2.69%
Average Yield2.77

The previous article found that the Scaredy Cat Vanguard Dividend Appreciation Portfolio SCVIG (see this article to discover why I used the Scaredy Cat handle, and hence the Scaredy Cat name for this portfolio) delivered some very impressive returns. An 85% total return from its inception in May 2006, compared to 35% for the total holdings of the Vanguard Dividend Appreciation Portfolio and 23% total return for the S&P 500 over that same period.

But being that it's a Dividend Growth Portfolio model (let's call this process ETF skimming) it's time to look under the hood and see how those dividends have been behaving.

Here is the dividend history for the Super Seven companies that were in SCVIG in May 2006, and are there today. Below are their quarterly dividends from dividata.com. Also listed is the CAGR or Compound Average Growth Rate of the dividends. CAGR is a hypothetical number, representing the average annual increase over any selected time period.

From May 2006 to Present.

  • Chevron .52 to .90 (71% increase) 9.2% CAGR

  • Exxon Mobil .32 to .57 (75% increase) 9.4% CAGR

  • Procter & Gamble .31 to .56 (80% increase) 9.7% CAGR

  • Coca-Cola .31 to .51 (69% increase) 8% CAGR

  • IBM .30 to .80 (270% increase) 16.4% CAGR

  • Wal-Mart .17 to .40 (230% increase) 14.1% CAGR

  • PepsiCo .30 to .54 (80% increase) 9.7% CAGR

The SCVIG Super Seven delivered a 10.9% CAGR from inception.

Also, Johnson & Johnson, United Technologies and McDonald's are also staples that have spent some extended time serving SCVIG.

  • JNJ from May 2006 to end of 2010 .38 to .54 (44%) 12.6% CAGR

  • And McDonald's from 2008 to present .38 to .70 (85%) 19.7% CAGR

  • United Technologies from 2010 to present went from .43 to .54. (23% increase) 7.9% CAGR

  • General Electric saw a modest 11% total increase from 2006 - 2007.

  • AIG (2007) 3.30 - 4.00 posted a 22% increase.

  • AT&T - no change (2008)

  • Abbott Labs delivered no change.

  • Wells Fargo (2009) - cut .34 to .052011

  • Conoco Philips no change.

The Compound Annual Rate of Growth for the dividends within SCVIG from mid 2006 to end of 2011 is estimated to be approximately 11.4%.

Checking in with the Dividend Growth history of the Total VIG holdings we find that VIG increased its quarterly payment from an area of .18 (average of five first dividend distributions) to .32. An increase over that year period of 80%. That will give us a Dividend CAGR (Compound Annual Growth Rate) of 9.7%.

For inclusion into the VIG Top Ten, a company has to be of high quality (more on that in the next SCVIG article) and has to have raised its dividend at least once in each of the last 10 years.

Let's look back at the current roster of the SCVIG companies to see what they've been up to over the last ten years. The numbers and research are courtesy of Robert Allen Schwartz and his incredible site. Given that a 10-year history of dividend increases is required to be included in the SCVIG, I've looked at the companies from 2002 to the end of 2011.

Wal-Mart

From 2002 to end of 2011 Wal-Mart delivered a CADGR (compound annual dividend growth rate) of 18.86%. That is the average (annual) rate at which Wal-Mart has increased it dividends over that 10 year period. A better way to think of that is - Wal-Mart has given investors an 18% raise every year. Imagine going into your boss and asking for an 18% raise every year. Yes, you can hear him or her laughing right now. Make sure they are not drinking coffee when you ask them, and bring a rain coat for their spit out.

Coca-Cola

Coke has poured in the dividends at a rate of 9.6% (CADGR). But recently the dividend growth has slowed to the 7% range.

IBM

IBM is searching for more revenue in the Cloud, from 2002 the Dividend CADGR was 19.3%. Though again that dividend growth rate has "slowed" to the area of 16% over the last couple of years.

Chevron Corporation

Chevron has been pumping out the profits (sorry for the bad puns, can't help myself) and dividends at the rate of 10% CADGR from 2002. It too has slowed to the area of dividend increases in the range of 6-8%.

PepsiCo

Pepsi had a CADGR of from 2002 of 14.4%. Those dividends are now a little more 'syrupy' and are pouring in at a rate of 7% over the last 3 years.

Procter & Gamble

From 2002 to 2011 P&G and its portfolio of brands was delivering a CADGR of 11.2%. The last three dividend increases have been in the range of 9-10%. She's holding up pretty good.

Exxon Mobil

Exxon Mobil is somewhat of a Steady Eddy. From 2002 its CADRG was 8.1%. Though the last three years we've seen dividend increases in the 5-7% range.

United Technologies

From 2002 United Technologies delivered a 16% CADGR. Over the last four years the dividend increases have fallen from 15% to 9.7%.

McDonald's

The world's favorite fast food joint has served investors some Super Size Me profits and dividends. From 2002, McDonald's had a CADGR of 30%. From 2006 to present the CADGR dropped to 20.4%. The last three years have seen 26%, 10% and 12% dividend increases. McDonald's is certainly in its Golden years, but can it still deliver?

3M

3M is certainly the turtle in this race for dividends. Talk about watching paint dry. In 2002 3M had a CADGR of 6.6%. The last three years 3M has struggled to beat inflation delivering increases of 2, 3 and 4.7%. This turtle is heading in the right direction over the last three years, but not sure if anyone will be there at the finish line to watch it break the tape. That said, its CADGR has been in the 4-6% range 'forever'. And this is a massive conglomerate that has its sticky fingers everywhere. And it's likely not leaving SCVIG in a hurry.

The $64,000 question is 'are these companies mature and in their dividend golden years?'. Does Ronald McDonald need a walker? Are they too big to grow revenues and dividends at a pace that is substantial enough to allow investors to increase that revenue stream and win in the race against Mr. Inflation?

Certainly over the last 6.5 years, the SCVIG has delivered on every measure, and during some troubling times to say the least. Perhaps any deceleration of dividend increases is largely due to the troubling economic times. It's not a fair fight to compare dividend growth rates of larger U.S. corporations during the 80s and 90s and companies in the 2000s while we're in a secular bear market and have experienced the tech crash of 2000-2003, soon followed by the Great Recession. Is it?

How much of the dividend slowdown is due to massive companies getting long in the tooth, compared to the trying underlying economic conditions and the new world order of slow growth? Here's U.S. GDP growth over ten year periods.

  • From 1982 to 1992 U.S. GDP increased from $3.2 trillion to $6.2 trillion - a 95% increase. 6.84% CAGR.

  • From 1992 to 2002, U.S. DGP increased from $6.2 trillion to $10.6 trillion - a 74% increase. 5.5% CAGR.

  • From 2002 to 2012 U.S. GDP increased from $10.6 trillion to $15.4 trillion - 45% increase. 3.5% CAGR.

Please note the above GDP numbers are not adjusted for inflation. But the trend is obvious. The last 3 10-year periods have seen GDP slow from 6.8% to 5.5% to 3.5%.

Now if we look at SCVIG from the start date of mid-2006, we find that U.S. GDP has increased from $13.7 trillion to $15.4 trillion - a 12% increase over that 6.5 year period. Pat on the back to the SCVIG then, given the circumstances. SCVIG delivered a CADGR of 11.4%, while the U.S. economy was growing at approximately 1.85% - compounded annually.

All while inflation was in the annual 2% range.

Though what drove profits in the 1980's is different from what will drive profits in 2012-2022. As I outlined in this article, U.S. multinationals such as IBM, McDonald's, Johnson and Johnson and others are creating 40% of their profits on average, overseas, in faster growing economies. The U.S. equity markets have decoupled from U.S. GDP growth.

But don't get too excited. As outlined in the above article, thanks to 'not-too-friendly' international corporate tax laws, those foreign profits are largely not being returned to U.S. shareholders in the form of dividends.

Ahhh, interesting times for Dividend Growth investors indeed.

As for the Scaredy Cat Vanguard Dividend Growth Portfolio - long in the tooth? Perfect for the times? Only time will tell.

Source: Dividend History: The Scaredy Cat Vanguard Dividend Appreciation Portfolio

Additional disclosure: Please note that Dale Roberts aka cranky, the crankywriter, the scaredy cat investor is not a licenced investor advisor, and the above opinions should only be factored in to an investor's overall opinion forming process. Consult a licenced investment advisor before making any investment decisions. Please note that Dale Roberts holds positions in the companies mentioned through the holding of a DJIA ETF.