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Welcome to Part Two of our look at perhaps the "Safest" dividend-growth stocks of the past decade. I'm retired and began investing in stocks in 2011. I was invested totally in the cash account of my 401K when the market fell apart in 2008. We began taking monthly withdraws from our account in 2009 and it became apparent by 2011 that we couldn't remain in cash, which by then was paying less than inflation.

As I embarked on my journey to become a self-director investor, I received an important piece of investing advise from my wife…..Don't lose money! From the beginning I was attracted to stocks that paid a dividend. I did not yet know specifically about dividend-growth investing and how it would ultimately become the investing approach that would help me sleep well at night. 2011 was a hard year. Safe to say I lost a lot of sleep .With a lot of luck I somehow managed to end my first year with a gain of over 6%, while the market was flat. 2012 would be different. I set out to find the safest dividend stocks by back testing for the period 2002-2011. From that effort emerged what I call my "Safety Superstars."

During this same period I discovered Seeking Alpha and dividend-growth investing. I also discovered that most of my "Safety Superstars" enjoyed another tier of safety. They were included in the list of Dividend Champions, Challengers and Contenders (CCCs) maintained by Seeking Alpha contributor David Fish, updated monthly and available free thru this link

Each stock featured had the distinction of not cutting its dividends but in fact growing them in 2008 and 2009 when so many companies were doing just the opposite. I realized that such a fact provided an important second tier of safety particularly if such dividend growth outpaced inflation.

In Part One of this series we examined the "Safest of the Safe" a select group of stocks that shared the following:

  • Each is a Dividend Champion, Challenger or Contender, meaning it has maintained and grown its dividend in each year from 2002 to the present. As a group the 31 stocks had a five-year Dividend Growth Rate of 10.39%
  • Each stock suffered less than half the loss of the S&P 500 during 2002 and 2008.
  • Each stock incurred no more than two down years during this turbulent period.

As a group the 31 stocks had an average gain of 12.56% during the period vs. an average gain for the S&P 500 of just 0.9% for the same period.

Thirty of the 31 stocks maintained their status as Level One Safety Superstars as we enter 2013.

Let's move now to our list of Level Two stocks and see how they fared.

To qualify for Level Two, stocks must possess the following:

  • Each must be a Dividend Champion, Challenger or Contender yielding 2% or more.
  • Each must have incurred a loss less than the S&P 500 during 2008.
  • Each must have incurred no more than three down years during the period 2002-2011.

Please note that the above are minimum standards. Many of these stocks just missed Level One honors.

The following 36 qualified as Level Two stocks at the start of 2012:

Stock

Ticker

Yield %

5 Year

DGR

%

10 Year

Ave Return

2012

Return

AFLAC

AFL

2.64

10.9

6.66

25.89

Alliance Resource

ARLP

7.48

13.6

15.17

-17.62

Altria

MO

5.6

14.3

17.1

11.77

AT&T

T

5.37

5.2

2.5

17.29

Avista Corp.

AVA

4.34

14.3

10.35

-1.86

Astrazeneca

AZN

6.26

13.9

5.69

8.27

Baxter International

BAX

2.70

9.6

3.51

37.89

BHP Billiton Pic.

BBL

3.24

19.0

7.35

24.35

Chubb

CB

2.18

9.0

10.88

11.18

Conoco

COP

3.87

13.1

15.96

8.86

Stock

Ticker

Yield %

5Year

DGR %

10 Year

Ave Return

2012

Return

Dominion Resources

D

4.34

7.6

10.90

1.56

Dynex Capitol

DX

12.29

7.4 (3yr.)

20.7

15.99

Enbridge Energy Ptnrs.

EEP

7.79

3.0

13.2

-9.45

Genesis

GEL

5.29

14.4

40.08

33.89

Hasbro

HAS

4.01

22.3

9.0

18.00

Heinz

HNZ

3.57

6.4

6.6

10.48

Kimberly Clark

KMB

3.51

7.4

5.7

18.80

Magellan Midstream Partners

MMP

4.49

7.4

20.2

30.59

National Retail Properties

NNN

5.06

2.2

15.1

24.18

NextEra Energy

NEE

3.47

7.9

11.9

17.59

ONEOK Inc.

OKE

3.09

12.7

21.5

1.56

Stock

Ticker

Yield %

5-Year

DGR

%

10 Year

Ave Return

2012

Return

Pepsi

PEP

3.14

12.2

5.4

4.66

Plains All America

PAA

5.1

5.2

18.9

28.93

PPL Corp.

PPL

5.03

3.4

12.20

2.23

Reynolds American

RAI

5.7

7.8

18.7

5.6

Rogers Communication

RCI

3.49

38.2

18.4

22.33

Sysco

SYY

3.54

7.3

5.11

11.63

W.P.Carey

WPC

5.06

4.8

13.2

33.35

Waste Management

WM

4.25

8.1

2.9

7.49

Westar Energy

WR

4.61

4.3

16.09

4.03

Wal-mart

WMT

2.28

13.5

2.9

16.83

Stock

Ticker

Yield %

5Year

DGR

%

10 Year

Ave Return

2012

Return

Caterpillar

CAT

2.32

8.2

16.00

2.22

Duke Energy

DUK

4.80

3.3

8.09

1.26

Piedmont Nat. Gas

PNY

3.83

11

11.0

-4.33

Sempra Energy

SRE

3.38

13.1

12.4

33.35

UNS Energy

UNS

4.05

13.8

11.0

19.48

Of the above 36 Stocks, 34 begin 2013 once again as Dividend Growth Safety Superstars, ARLP and AVA lose that distinction due to a fourth year of losses. As a group they finished with a capital gain average of 15.24% beating their 10-year average of 14.26%. If you bought equal positions at the end of the year, your portfolio would yield 4.47%.

Of the 67 Stocks that reign as Superstars, I am proud to personally own 34. There are a number of reasons why I don't own them all. Among my personal reasons are the following:

  • Some like Caterpiller - CAT and BHP Biliton - BBL have high betas. I have a problem comfortably owning stocks with wide swings up or down.
  • Many yield less than the 3.0 yield I require when buying.
  • Many were overvalued when I was buying.
  • For the sake of a balanced portfolio I need to purchase stocks in sectors not represented among this group.

Those of you considering a dividend-growth portfolio should certainly give the stocks in both parts of this series your due diligence.

Be certain to give preference to those that are fairly or undervalued. I also recommended that a stock purchases you make be in accordance with a personal portfolio business plan fashioned from your investing objectives and personal risk tolerance. If you'd like a look at mine its available here.

I'm going to close out this update with a little mystery. One of the stocks that's part of Level One has gained money every year since 1998. When you post comments, post which of the stocks you believe has that distinction. Be sure to come back to the comments section on Tuesday when I post which stock it was.

Thanks again for reading, for commenting and for being such an important part of my investing education over the past year.

Source: Dividend Growth Safety Superstars - 2012 Update - Part Two