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It was about a year ago that I became a dedicated Dividend Growth Investor ((NYSE:DGI)). Yes, before that I invested in dividend stocks, and in dividend paying ETFs, but I didn't focus on the dividend growth and reinvestment aspects that are so integral to DGI. But after reading about DGI here on Seeking Alpha I saw the light. The logic and clarity of investing for income, focusing on the dividend, and letting the capital gains follow, just made so much sense to me. As a full time physician, husband and father of three (not to mention my three dogs!), it also fit my lifestyle perfectly. I'm able to make my investment decisions knowing that I plan on holding any stocks I buy for many years, so I no longer have to keep half an eye on the market to try to follow my stocks, trying to determine if something has happened and I need to sell. I can relax! And I can sleep well at night

I was so excited about my conversion, and so thankful to the Seeking Alpha authors who guided me, that I decided that I would "pay it forward" and open up my portfolio and actions for all to see, first, so others could learn from my moves (what to do, and possibly what NOT to do), but also so that others could critique what I was doing, and teach me even more. It is also a demonstration of the real world experiment I am running with my KISS (keep it simple, stupid) method of DGI. I am trying to show that by combining a few simple criteria you can create a powerful screen which you can use to put together a portfolio. It only takes about 1-2 hours every three months to screen for suitable stocks, but I believe that, even with just this small amount of time evaluating stocks, I will achieve results that are quite acceptable to me, and competitive with the results achieved by those who put hours and hours into studying stocks every week.

So here is the 4th quarter update, and year-end review, of my KISS portfolio. You can find my previous update here.

Sales

Although I did sell Nike (NYSE:NKE) last quarter, as an attempt to increase the overall yield of my portfolio, I usually only sell a stock if it cuts or freezes its dividend. As time goes on I may decide to sell a stock if its dividend growth rate (DGR) falls too low. But for now I will only sell for a cut or a freeze.

This quarter none of my stocks cut their dividend, or became over due for a dividend increase. So I made no stock sales.

Purchases

With my most recent profit sharing contribution, and the $5597.73 in dividends I received during the quarter, I had about $20,400 dollars to invest.

In this recent article I discussed my criteria for making purchases. But here is a quick summary:

  1. Stock is on the CCC list (as compiled by David Fish)
  2. Yield >2.5%
  3. Payout ratio < 60%
  4. Chowder Rule >12%
  5. Quality Rating of A- or better from S&P
  6. FAST Graph shows a 10 year uptrend in earnings and that the stock is not overvalued.

The following stocks passed my screen as of Dec 31st:

Company Name

Div Yield

Lockheed Martin (NYSE:LMT)

3.58%

McDonald's Corp. (NYSE:MCD)

3.34%

Chevron Corp. (NYSE:CVX)

3.20%

Microsoft Corp. (NASDAQ:MSFT)

2.99%

Canadian National Railway (NYSE:CNI)

2.91%

Baxter International Inc. (NYSE:BAX)

2.82%

Target Corp. (NYSE:TGT)

2.72%

ExxonMobil Corp. (NYSE:XOM)

2.50%

When evaluating MLPs, REITs and Utilities I use different criteria:

  1. On CCC list
  2. Yield > 3%
  3. Chowder Rule > 8%
  4. DGR for all time periods (1yr, 3yr, 5yr and 10yr) at least 4%, but also consistent over all time periods.
  5. FAST Graph shows a 10 year uptrend (or the life of the company, if less than 10 years) in Funds From Operations (FFO), and shows that the stock is not presently overvalued.

The following MLPs, REITs and Utilities passed my screen:

Company Name

Div Yield

Kinder Morgan Energy Partners (NYSE:KMP)

6.69%

Omega Healthcare Investors (NYSE:OHI)

6.44%

Digital Realty Trust (NYSE:DLR)

6.35%

Holly Energy Partners LP (NYSE:HEP)

6.09%

Realty Income Corp. (NYSE:O)

5.86%

Targa Resources Partners LP (NYSE:NGLS)

5.60%

Alliance Holdings GP LP (NASDAQ:AHGP)

5.51%

ONEOK Partners LP (NYSE:OKS)

5.51%

Plains All American Pipeline LP (NYSE:PAA)

4.64%

Brookfield Infrastructure Partners LP (NYSE:BIP)

4.39%

Enterprise Products Partners LP (NYSE:EPD)

4.16%

Genesis Energy LP (NYSE:GEL)

3.98%

Dominion Resources (NYSE:D)

3.71%

Alliant Energy Corp. (NYSE:LNT)

3.64%

New Jersey Resources (NYSE:NJR)

3.63%

Magellan Midstream Partners LP (NYSE:MMP)

3.52%

South Jersey Industries (NYSE:SJI)

3.38%

Sunoco Logistics Partners LP (NYSE:SXL)

3.34%

Energy Transfer Equity LP (NYSE:ETE)

3.29%

With $20,400 to invest, and me considering $13,000 to be a fully funded position, I had to pick one of these stocks to buy as a new full position. I already own 13 of these stocks, so, that left 14 to consider. I am still in the process of trying to increase my portfolio yield, so I wanted to pick the stock from the above list, one that I don't already own, with the highest yield. This would have been Holly Energy Partners. But since I already own Kinder Morgan Management (NYSE:KMR), PAA, Buckeye Partners (NYSE:BPL) and Williams partners (NYSE:WPZ) I didn't think I should buy another pipeline company. So I went further down the list and picked BIP. Although it too has a pipeline business, it also has port and transportation facilities, and timber operations, so it gives me some more diversification.

I bought 331 shares of BIP at $38.89.

Reinvestments

Most of my portfolio is in a 401K profit sharing plan held at Univest. This was arranged through my physician group and I cannot change to a different brokerage. Univest does not offer dividend reinvestment, so I must reinvest most of my dividends myself. However, I do have some funds in my account at Optionsxpress, and I do have dividend reinvestment activated for the stocks held in that account. Therefore, here is a summary of the stocks and the extra shares I received through the DRIPs.

Stock

Shares

Alliance Resource Part. (NASDAQ:ARLP)

2.325

Avista Corp (NYSE:AVA)

4.592

Dynex Capital (NYSE:DX)

19.131

General Electric (NYSE:GE)

2.626

Kinder Morgan Mngmt

3.00

ONEOK Inc. (NYSE:OKE)

1.76

Wells Fargo (NYSE:WFC)

3.64

After my purchase of BIP I had about $7500 remaining. I used this money to reinvest in some of my holdings which appeared to be the most undervalued. I evaluate all my stocks and rank them based on their Percentage Above Average Yield (PAAY). I have already written an article about this so I won't go into the details here. Suffice it to say that stocks that have a yield higher than they usually do, either due to a drop in the stock price, or an increase in the dividend, may be undervalued. I consider the stocks in my portfolio with the highest PAAY to be the most undervalued. Therefore these are the stocks that I buy more of when reinvesting my dividend.

These are the stocks into which I reinvested the rest of my funds:

Company

Shares

Price

Deere (NYSE:DE)

11

$91.02

Digital Realty

32

$49.96

Dynex Corp

75

$7.99

McDonald's

30

$96.70

Realty Income Corp

15

$37.61

Pimco Corp. & Income (NYSE:PTY)

34

$17.60

After all of these purchases here is the composition of my portfolio:

STOCK

SHARES

PRICE

Market Value

Div

Yield

2014 Exp. Income

AFLAC Inc. (NYSE:AFL)

217

$66.15

$14,354.55

1.48

2.24%

$321.16

Air Products (NYSE:APD)

111

$111.22

$12,345.42

2.84

2.55%

$315.24

Alliance Resource Part.

177.588

$76.30

$13,549.96

4.7

6.16%

$834.66

Avista

513.347

$27.96

$14,353.18

1.22

4.36%

$626.28

Boeing (NYSE:BA)

153

$137.62

$21,055.86

2.92

2.12%

$446.76

BHP Billiton (NYSE:BBL)

174

$60.84

$10,586.16

2.36

3.88%

$410.64

Becton Dickinson (NYSE:BDX)

137

$109.37

$14,983.69

2.18

1.99%

$298.66

Brookfield Infrastr. Part.

331

$38.91

$12,879.21

1.72

4.40%

$569.32

Buckeye Partners, L.P.

280

$70.75

$19,810.00

4.3

6.08%

$1,204.00

Cracker Barrel Old Cntry (NASDAQ:CBRL)

183

$110.59

$20,237.97

3

2.71%

$549.00

Cincinnati Financial (NASDAQ:CINF)

279

$51.13

$14,265.27

1.68

3.29%

$468.72

ConocoPhillips (NYSE:COP)

197

$69.96

$13,782.12

2.76

3.95%

$543.72

CSX Corp. (NYSE:CSX)

560

$28.43

$15,920.80

0.6

2.11%

$336.00

Chevron Corporation

90

$124.35

$11,191.50

4

3.22%

$360.00

Dominion Resources

219

$63.51

$13,908.69

2.25

3.54%

$492.75

Deere & Company

120

$90.66

$10,879.20

2.04

2.25%

$244.80

Diageo plc (NYSE:DEO)

62

$130.82

$8,110.84

3.79

2.90%

$234.98

Digital Realty Trust

264

$49.83

$13,155.12

3.12

6.26%

$823.68

Darden Restaurants (NYSE:DRI)

303

$53.01

$16,062.03

2.2

4.15%

$666.60

Dynex Capital Inc.

1,661.13

$8.01

$13,305.66

1.08

13.48%

$1,794.02

Emerson Electric Co. (NYSE:EMR)

161

$69.37

$11,168.57

1.72

2.48%

$276.92

First of Long Island Corp. (NASDAQ:FLIC)

419

$41.41

$17,350.79

1.04

2.51%

$435.76

General Dynamics Corp. (NYSE:GD)

162

$94.74

$15,347.88

2.24

2.36%

$362.88

General Electric

342.342

$27.48

$9,407.56

0.88

3.20%

$301.26

Hasbro Inc. (NASDAQ:HAS)

300

$54.11

$16,233.00

1.6

2.96%

$480.00

Harris Corporation (NYSE:HRS)

253

$69.30

$17,532.90

1.68

2.42%

$425.04

Illinois Tool Works (NYSE:ITW)

157

$83.74

$13,147.18

1.68

2.01%

$263.76

Johnson & Johnson (NYSE:JNJ)

159

$91.85

$14,604.15

2.64

2.87%

$419.76

Kinder Morgan Mngmt

267.134

$75.03

$20,043.06

5.4

7.20%

$1,442.52

L-3 Communications. (NYSE:LLL)

146

$105.38

$15,385.48

2.2

2.09%

$321.20

Lockheed Martin Corp

144

$147.06

$21,176.64

5.32

3.62%

$766.08

McDonald's Corp.

128

$96.54

$12,357.12

3.24

3.36%

$414.72

Medtronic, Inc. (NYSE:MDT)

261

$58.34

$15,226.74

1.12

1.92%

$292.32

Microsoft Corp

495

$36.91

$18,270.45

1.12

3.03%

$554.40

Norfolk Southern Corp (NYSE:NSC)

174

$91.37

$15,898.38

2.08

2.28%

$361.92

Novartis AG (NYSE:NVS)

200

$79.11

$15,822.00

2.53

3.20%

$506.00

Realty Income Corp.

369

$37.73

$13,922.37

2.19

5.80%

$808.11

Omega Healthcare Inv

449

$29.92

$13,434.08

1.92

6.42%

$862.08

ONEOK Inc.

268.764

$61.32

$16,480.61

1.52

2.48%

$408.52

Plains All American

287

$51.21

$14,697.27

2.4

4.69%

$688.80

Paychex, Inc. (NASDAQ:PAYX)

438

$45.22

$19,806.36

1.4

3.10%

$613.20

PepsiCo, Inc. (NYSE:PEP)

162

$82.24

$13,322.88

2.27

2.76%

$367.74

Procter & Gamble (NYSE:PG)

166

$80.45

$13,354.70

2.41

3.00%

$400.06

Pimco Corp & Income

827

$17.54

$14,505.58

1.38

7.87%

$1,141.26

Qualcomm (NASDAQ:QCOM)

152

$72.89

$11,079.28

1.4

1.92%

$212.80

Raytheon Co. (NYSE:RTN)

198

$88.82

$17,586.36

2.2

2.48%

$435.60

Sysco Corporation (NYSE:SYY)

372

$36.05

$13,410.60

1.16

3.22%

$431.52

Target Corp.

195

$63.49

$12,380.55

1.72

2.71%

$335.40

UGI Corporation (NYSE:UGI)

379

$40.63

$15,398.77

1.13

2.78%

$428.27

United Technologies (NYSE:UTX)

108

$112.90

$12,193.20

2.36

2.09%

$254.88

Walgreen Co. (WAG)

294

$56.82

$16,705.08

1.26

2.22%

$370.44

Wisconsin Energy (NYSE:WEC)

336

$40.68

$13,668.48

1.53

3.76%

$514.08

Wells Fargo

262.705

$45.34

$11,911.04

1.2

2.65%

$315.25

Wal-Mart Stores (NYSE:WMT)

184

$78.65

$14,471.60

1.88

2.39%

$345.92

Williams Partners

258

$50.34

$12,987.72

3.51

6.97%

$905.58

CASH

$844.15

$805,869.81

3.60%

$29,005.05

Year End Portfolio Review

The return of my portfolio this year was 30.54%. This is compared to the S&P, which returned 29.60%. Although the goal of my portfolio is to produce an ever increasing income from dividends, and not specifically to beat the S&P, I feel that if I am significantly under performing the S&P over the next few years then I need to re-evaluate what I am doing. So far I seem to be doing OK.

The following is a chart showing all of the stocks I own (not including BIP), the return they achieved this year (not including dividends), and the dividend growth rate of each over the past year.

Stock

Return

DGR

Stock

Return

DGR

Stock

Return

DGR

Stock

Return

DGR

Stock

Return

DGR

AFL

21.99%

5.71%

CSX

35.77%

7.14%

GE

29.62%

15.79%

NSC

39.77%

4.00%

RTN

50.52%

10.00%

APD

28.27%

10.94%

CVX

12.53%

11.11%

HAS

51.40%

11.11%

NVS

23.07%

2.85%

SYY

13.19%

3.57%

ARLP

24.41%

9.66%

D

18.62%

6.63%

HRS

38.93%

13.51%

O

-8.71%

21.23%

TGT

4.80%

19.44%

AVA

13.34%

5.17%

DE

2.24%

10.87%

ITW

34.20%

10.53%

OHI

21.33%

10.06%

UGI

20.35%

4.44%

BA

77.17%

10.23%

DEO

11.65%

5.95%

JNJ

28.37%

8.20%

OKE

38.20%

16.54%

UTX

32.85%

10.28%

BBL

-13.48%

3.57%

DLR

-27.49%

6.85%

KMR

-0.94%

8.45%

PAA

7.63%

10.26%

WAG

52.82%

14.55%

BDX

36.12%

10.10%

DRI

14.10%

10.00%

LLL

35.61%

10.00%

PAYX

40.57%

9.37%

WEC

7.93%

12.65%

BPL

46.81%

1.78%

DX

-0.19

-6.90%

LMT

56.61%

15.65%

PEP

18.40%

5.21%

WFC

29.77%

20.00%

CBRL

68.38%

50.00%

EMR

25.97%

4.88%

MCD

7.45%

5.19%

PG

16.44%

7.12%

WMT

13.89%

18.09%

CINF

26.75%

3.19%

FLIC

40.42%

4.00%

MDT

36.76%

7.69%

PTY

-10.87%

18.58%

WPZ

0.02%

8.76%

COP

16.93%

4.55%

GD

33.31%

9.80%

MSFT

38.03%

21.74%

QCOM

14.79%

40.00%

The average DGR for all of these stocks is 10.74%.

Since I only started this dedicated DGI portfolio in January I can't calculate an actual DGR for this year. What I can say is that when I published my first portfolio update on Feb 11 my expected dividends over the next 12 months (ED12) was $22,475. Now my ED12 is $29,005. This is an increase of 29.05% in only 11 months.

The dividends I collected for each of the past 12 months are as follows:

  • Jan -- $1751.06
  • Feb -- $1192.11
  • Mar -- $2117.01
  • April -- $1959.77
  • May -- $ 2059.03
  • June -- $ 2037.02
  • July -- $517.25
  • Aug -- $2312.7
  • Sep -- $2443.57
  • Oct - $958.47
  • Nov - $2292.72
  • Dec - $2346.54

During 2013 I collected $21,987.25 in dividends

Conclusion

My first year as a dedicated DGIer has gone very well. My total return has been excellent and the growth of my dividend income has been quite high. I understand that my portfolio return in large part was due the bull market we had this year. But my DGR is not dependent on the market's return, so I feel that I can instead consider it to be a function of the quality of the stocks I have chosen. At least for this first year I believe that my KISS method has worked quite well. We shall see what the future holds.

Thank you for reading my article. I welcome your comments and criticisms.

Disclosure: I am long BIP. 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.

Source: My KISS Portfolio: 4th Quarter Update And Year End Review