It's Time To Play Ball (Part 4): The Winning Dividend Growth Roster

by: Mike Nadel

As general manager of our Dividend Growth Investing "team," my work is not done. Winning GMs are constantly scouting and acquiring top talent. Nevertheless, I am thrilled with the solid foundation we have built and organizational plan we have established.

Barring catastrophic events, this roster of DGI Superstars and Role Players should win for decades to come. And by "win," I mean provide a reliable, growing stream of inflation-beating dividends that will complement our Social Security and pensions, ensuring a fulfilling, financially-secure retirement for me and my wife.

Getting here wasn't easy. In my first year-plus as a DGI proponent, I didn't have much of a plan. I bought this company and that company ... and ended up with a lineup filled with second-stringers. Now, I finally feel we own the best. I detailed our flight to quality in the first three parts of this series (Part 1, Part 2, Part 3), and now it's time to dig deeper into our winning roster.

The following three tables show the companies we own. (Please note that all data used in this article is through close of market Wednesday, Aug. 21.)







Walgreen (WAG) Cons Stpls 6.4 3.3 2.6 23.7
Procter & Gamble (NYSE:PG) Cons Stpls 6.4 3.2 3.0 10.2
Philip Morris (NYSE:PM) Cons Stpls 5.2 2.6 4.1 33.2
Coca-Cola (NYSE:KO) Cons Stpls 4.8 2.4 2.9 8.4
General Mills (NYSE:GIS) Cons Stpls 4.1 2.1 3.1 10.8
Chevron (NYSE:CVX) Energy 3.8 1.9 3.4 9.2
Johnson & Johnson (NYSE:JNJ) Health Care 3.8 1.9 3.0 8.2
ExxonMobil (NYSE:XOM) Energy 3.7 1.9 2.9 9.7
McDonald's (NYSE:MCD) Cons Discret 2.9 1.5 3.2 13.9
TOTAL 41.1 20.9

Key: %SP=Percentage of Individual Stock Portfolio; %OP=Percentage of Overall Portfolio; YLD=Dividend Yield; 5DGR=5-year Dividend Growth Rate.

Eventually, I would like each DGI Superstar to represent at least 2.5% of our overall portfolio, so I will be looking to add to six of the nine. Although I recently bought some shares of these companies when they were fully valued (and, in a couple of cases, when they were somewhat overvalued), future purchases definitely will be made at more attractive valuation points.


3M (NYSE:MMM) Industrials 4.0 2.0 2.2 4.2
Royal Dutch Shell (NYSE:RDS.A) Energy 3.5 1.8 5.7 NA
Realty Income (NYSE:O) Financials-REIT 3.5 1.8 5.4 1.5
Wal-Mart (NYSE:WMT) Cons Stpls 3.4 1.7 2.6 13.5
Target (NYSE:TGT) Cons Discret 3.1 1.6 2.6 20.5
ConocoPhillips (NYSE:COP) Energy 3.0 1.5 4.2 13.1
Wisconsin Electric (NYSE:WEC) Utilities 2.9 1.5 3.8 19.1
Altria (NYSE:MO) Cons Stpls 2.8 1.4 5.3 14.3
Southern Company (NYSE:SO) Utilities 2.8 1.4 4.9 4.0
Kinder Morgan Inc (NYSE:KMI) Energy 2.4 1.2 4.3 NA
Kimberly Clark (NYSE:KMB) Cons Stpls 2.0 1.0 3.4 7.0
Deere (NYSE:DE) Industrials 2.0 1.0 2.5 14.5
Aflac (NYSE:AFL) Financials 1.8 0.9 2.4 10.9
Kinder Morgan Mgmt (NYSE:KMR) Energy 1.3 0.6 6.4 7.4
TOTAL 38.5 19.5

Since I wrote about our Role Players in Part 2 of this series, we have added Deere, Wisconsin Electric and Target.

Deere was deep on my watch list until a reader with the screen name TRHanson suggested in the Part 2 comment stream that I give it a look. Close examination found that DE has grown EPS by double digits in six of the last seven years and has grown dividends by more than 350% since 2003. In a recent article on Industrials, Chuck Carnevale identified Deere as undervalued. In its quarterly report last week, Deere easily beat analysts' income and earnings estimates but nonetheless share prices fell due to lower forward guidance. So I took advantage of what I considered an excellent buying opportunity.

Wisconsin Electric has been one of the top performing utilities for years. It also has an impressive record of dividend growth -- with annual raises no lower than 8% since 2007 and double-digit increases each of the last five years. Like the rest of the utility sector, it has been beaten down recently.

Target has dipped into fair-value range, so I decided to invest in this big-box retailer. It has a 46-year streak of dividend increases and management has promised to grow divvies aggressively in the next few years. Although TGT on Wednesday warned of lowered expectations for the year, I firmly believe in this company for the long haul.

Eventually, I would like each Role Player to represent between 1.5% and 2% of our overall portfolio. So I'll be looking to beef up seven of the 14 positions even as I remain open to adding other worthy names.


General Electric (NYSE:GE) Industrials 5.7 2.9 3.2 NA
Waste Management (NYSE:WM) Industrials 3.0 1.5 3.5 8.1
Vodafone (NASDAQ:VOD) Telecom 2.5 1.3 5.3 NA
BCE (NYSE:BCE) Telecom 2.3 1.2 5.5 NA
Health Care REIT (NYSE:HCN) Financials-REIT 1.9 1.0 5.0 5.4
Main Street Capital (NYSE:MAIN) Financials-BDC 1.5 0.7 6.6 NA
Omega Healthcare Investors (NYSE:OHI) Financials-REIT 1.3 0.6 6.4 9.4
National Health Investors (NYSE:NHI) Financials-REIT 1.2 0.6 5.1 5.8
National Retail Properties (NYSE:NNN) Financials-REIT 1.1 0.6 5.2 2.2
TOTAL 20.4 10.5

As I explained in Part 3, Prospects (& Suspects) are not core holdings and might change based on fundamentals, dividend treatment or other factors -- such as us needing money to add to DGI Superstars or Role Players.

In fact, since I decided to build a winning roster of top talent, I have dumped several players that didn't fit our team, including: LinnCo (LNCO), Intel (NASDAQ:INTC), AstraZeneca (NYSE:AZN), Bristol-Myers Squibb (NYSE:BMY) and GlaxoSmithKline (NYSE:GSK).

Baseball managers hate losing, but the best look at the big picture. That's why they occasionally leave starting pitchers in lopsided games instead of using an already tired bullpen or why they give star players extra days off. As World Series-winning manager Lou Piniella once told me: A few times a year, you might have to lose today's game in order to win tomorrow's pennant.

We came out ahead on AZN, BMY and GSK but lost money on LNCO and INTC. That's OK; they are yesterday's news. Ten and 20 and 40 years from now, when we are living large on our growing dividend stream, we will celebrate our championship roster.

The following table shows the breakdown of our individual stock holdings by sector:


% OF


Consumer Staples 35.1
Energy 17.8
Industrials 14.6
Financials 12.2
Consumer Discretionary 6.0
Utilities 5.7
Telecom 4.8
Health Care 3.8
Technology 0.0
Materials 0.0

As everyone can see, I especially like Consumer Staples because no matter what the economy is doing, people still need to put diapers on their babies, still have to eat and still choose to smoke. Otherwise, I try to focus on individual companies, not sectors. Many corporations participate in multiple sectors, anyway, for example: WAG (healthcare); JNJ (consumer); GE (financial) and MMM (technology).

In addition to individual stocks, our portfolio includes three mutual funds, a savings bond, a guaranteed fund from my wife's former 401k and cash, as follows:

Individual Stocks Stocks 50.9
TIAA Traditional Guaranteed Fund 13.7
Vanguard Wellington Mut Fund-Balanced 8.0
Vanguard Total Stock Index Mut Fund-Large Cap Stock 7.1
U.S. Savings Bond - I Bond Bond 0.7
Vanguard Small Market Index Mut Fund-Small Cap Stock 0.4
Money Available to Invest Cash 13.7
Emergency Fund Cash 5.5

Here is one more breakdown:

Stocks 63.5
Cash 19.2
Guaranteed Fund 13.7
Bonds 3.6

Yes, my wife could roll her guaranteed fund into an IRA so we could buy more stocks. With a portfolio largely exposed to the market's whims, however, we like the safety her fund provides. It guarantees at least a 3% annual yield, and this year it is paying 3.9%. That far exceeds anything available in a CD or government bond.

Our two index funds are in active 401k accounts, so they are untouchable for now. We could sell the Vanguard Wellington in our IRAs to buy more stocks, but this balanced fund (approximately two-thirds stocks and one-third bonds) provides most of the limited bond exposure we have. Also, its stock component has large stakes in several companies we otherwise don't own, including Wells Fargo, J.P. Morgan, Merck, Microsoft, Verizon, Comcast, IBM and Apple. As a bonus, Wellington sports a 2.2% yield. Having this venerable, well-managed fund on our team is comforting -- kind of like having a good backup ballplayer who does a little of everything.

We could spend more of our non-emergency money on stocks, too. But after going on a bit of a shopping spree lately, we are holding onto some cash as we wait for better opportunities. Our cash position has declined from nearly 35% of our portfolio late last year to today's 19%. With the markets a little jittery, with the Fed talking about ending stimulus and with a debt-ceiling battle threatening to shut down the government, having a healthy cash position works for us right now.


First, let me thank all the readers who made Parts 1, 2 and 3 of this series so popular, with tens of thousands of pageviews and 800-plus comments to date.

I'd love to say the popularity came about because these were the best-written articles in the history of journalism. I'd also love to say I have the strength of 10 men, but that would be a bit of a stretch, too.

In reality, this series has resonated because we investors never stop searching for the right combination of "talent" for our rosters. We all want to win big and we all want to own the best -- even if each of us might define "win" and "best" a little differently.

With the help of many knowledgeable folks who frequent Seeking Alpha, I decided to focus on building the very best portfolio I could. Now that I've done so, a wonderful calm has come over me.

The market will go up and the market will go down, as it has for generation after generation, but our dividends will grow and grow. Oh, and even though capital gains aren't our primary concern, our high-quality companies should do fine in that department, too.

Ahhh ... it's nice to have a realistic, reliable, reasonably low-stress game plan. Let's play ball!

Disclosure: I am long AFL, BCE, COP, CVX, DE, GE, GIS, JNJ, KMB, KMI, KMR, KO, MAIN, MCD, MMM, MO, NHI, NNN, O, OHI, PG, PM, RDS.A, SO, TGT, VOD, WAG, WEC, WM, WMT, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.