We are almost half way through the month of May and global stock markets are holding their own for now. The lack of a significant stock sell off suggests few market participants believe in the "sell in May and go away" fable. Yes, I know that this approach has worked more often than it has failed... but, such guidelines are too erratic for me to act upon. I feel a better approach is to stick to my investing game plan, through thick and thin, and that is what I aim to do.
In recent weeks, I have been writing about my continued search for small-cap value investments. With that in mind, I will devote this post to my other investing approach. Dividend Growth Investing. With the help of the lists and tools from Dividend Ladders, I took note of the dividend stocks listed in the table below.
Utility companies (like Entergy Corp. (NYSE:ETR) and Consolidated Edison (NYSE:ED)) are a staple of many dividend portfolios because they provided stable cash flow, predictable earnings and growing (albeit slowly) dividends. I included TAL International Group (NYSE:TAL), Regal Entertainment Group (NYSE:RGC) and Mattel (NASDAQ:MAT) because I know that several readers own them.
As the name implies, growing dividends are actually the focus of the dividend growth side of our portfolio. While cash flow today is great, companies that have consistently compounded their earnings and grown their cash flow are even better. Several companies in our portfolio, such as Coca-Cola (NYSE:KO), Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG), have a long-term record of compounding earnings and raising dividends. These companies have raised their dividends annually at a pace far higher than the rate of inflation. The trick is finding "the next Coca-Cola," but that is much trickier.
The great thing about dividends is that they consistently provide the investor, in this case my wife and myself, with reliable cash that we can allocate however we want. As our portfolio continues to grow, this cash will be able to work even harder for us. The options are almost limitless for how to allocate the cash. I know investors that immediately reinvest that cash in the same companies. I know others that let it accumulate in a money market account until a lucrative investment opportunity presents itself. I know still others that use this cash flow to fund their vacations and toys. My wife and I have traditionally reinvested cash dividends, but about a year ago we changed our dividend election to accumulate (pool) our cash. Another benefit to this cash flow, is it serves as part of our emergency fund. Clearly not a long-term plan, but a little extra cash flow REALLY helps in a pinch.
What do you do with your cash dividends? Do you reinvest them automatically, accumulate them and make other investments, or something else?