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The Dividend Champions spreadsheet has been updated through 8/31/10

To download the latest version of the U.S. Dividend Champions spreadsheet or PDF, go here.

In a separate article, I discussed how a retirement-age investor might use the new Quarterly Schedule column to spread out their holdings by Pay Dates throughout the typical quarter so as to match spending needs. For a more in-depth discussion of income investing in retirement, I suggested reading David Van Knapp's series on the subject, culminating in his “Cistern Analogy” article, which can be found here.

If the income going into the “cistern” matches the outflow, then the investor can maintain a certain degree of assets without having to resort to selling stocks, for example, in order to fund retirement. But several people commented that it would be good to have a model designed for investors that are far from retirement, perhaps even those just starting out. I'm not in such a position myself, so I'll have to hand this over to Young Dave, who is about half my age (61) and has a better perspective.

My Cistern Runneth Under

Thanks, Old Dave, it's good to have a chance to write about using the Quarterly Schedule column to help build a “starter portfolio” of companies that increase their dividends year after year. Of course, my perspective is much different than that of a retirement-age investor, so I'll be building an entirely different model that focuses on different parameters and methods. Since I'm starting out with next to nothing, or a nearly empty cistern, to use that analogy, my goal will be to fill the cistern over time, while not taking anything out. Since I've been employed for a few years and have signed up for 401k contributions, I can only afford modest amounts each month. My plan is to invest through DRIPs. By that, I don't mean simple dividend reinvestment, which can be done with most brokers. Instead, I mean company-sponsored Dividend Reinvestment Plans that allow the participants to make periodic investments, often as little as $25 at a time. With a little discipline, I think I can afford to invest about $300 a month, or $25 in each of a dozen plans, and dollar-cost averaging will spread my investments over time, minimizing the pricing risk.

What follows is an exercise in building such a model portfolio, which will only include no-fee DRIPs, since I can't afford to waste money on plans that charge fees or commissions. I'll repeat the disclaimer from the previous model: This model-building exercise is NOT intended as a recommendation of the stocks mentioned. I will purposely mix stocks that Old Dave owns with others, will deliberately include securities from different industries so as to reflect a diversified approach, and will mix Champions and Contenders liberally, but try to lean toward the “younger” companies. The main thrust will be to come up with Quarterly Schedule dates that stretch from early in the first month (A) of a quarter to late in the third month (C). Unlike the model that was designed for immediate retirement use, I'll include only below average yields, by which I mean below the average for the Champions and Contenders, since I'm more concerned about growth than current yield.

The Exercise Begins

I started by choosing a few stocks that Old Dave owns, which have below average yields and represent different industries. Next, I chose some complementary Champions and Contenders that would “fill in the gaps” in terms of payment dates, making sure that they also had below average yields and provided even more diversity. The result was a diverse group of companies and a range of yields from 1.19% to 3.00%, with August 31 prices ranging from $25.76 to $86.03:

Company

Symbol

Price

Yield

Q Div

Q Sch

Shares

Div.

Cost

Brown-Forman B

BF.B

61.29

1.96

0.3000

A04

1

0.30

61

Raven Industries

RAVN

33.71

1.90

0.1600

A15

1

0.16

34

McCormick & Co.

MKC

39.87

2.61

0.2600

A15

1

0.26

40

Brady Corp.

BRC

25.76

2.72

0.1700

A30

1

0.17

26

Month A Totals:

4

0.89

161

Graco Inc.

GGG

27.91

2.87

0.2000

B03

1

0.20

28

Pentair Inc.

PNR

30.10

2.52

0.1900

B12

1

0.19

30

Polaris Industries

PII

53.33

3.00

0.4000

B16

1

0.40

53

Beckman Coulter

BEC

45.64

1.58

0.1800

B23

1

0.18

46

Month B Totals:

4

0.97

157

AFLAC Inc.

AFL

47.25

2.54

0.3000

C01

1

0.30

47

Donaldson Company

DCI

41.90

1.19

0.1250

C10

1

0.13

42

Praxair Inc.

PX

86.03

2.09

0.4500

C15

1

0.45

86

South Jersey Ind.

SJI

46.99

2.81

0.3300

C29

1

0.33

47

Month C Totals:

4

1.21

222

Portfolio Totals:

12

3.07

540

As you can see, there are four stocks in each month, although I did not attempt to spread them quite as evenly as the earlier model, since the goal here is accumulation, not spending. I picked just two Champions and ten Contenders, and personally own just four of the stocks. Again, I'm not recommending that anyone adopt this particular mix of stocks, nor do I plan to build such a portfolio for myself at this time. This exercise is for demonstration purposes only.

Putting the Model into Action

Since this model was designed to utilize company-sponsored DRIPs to accumulate shares, I specified just one share per company, which is all that is required to enroll in each DRIP. Some of these companies offer direct-enrollment plans, but that avenue of enrollment generally requires a minimum outlay of $250, $500, or even $1,000 per plan. Since this is just a model-building exercise, I'm going to simply estimate an initial outlay of $1,000, including the cost of one share and the enrollment fees. That contrasts with the retirement-age cost of over $68,000, which most 30-year-olds simply don't have lying around.

Note that the dividends for the above portfolio for four quarters would total $12.28, based on an investment of $540, so the composite yield is 2.27%, but the yield-on-cost (YOC) would tend to rise steadily from that starting point. The real benefit of this starter portfolio, of course, would be in the future accumulation, based on regular investments. As stated earlier, the intent is to invest about $300 per month ($25 per company), or $3,600 per year. That would mean investing a total of about $72,000 (including some start-up costs) over the course of 20 years, which would make it reasonable to assume that such an investor could switch to the earlier retirement-age model and/or retire early, with some capital left over. To see how such a program might compound over time, I called on the DCA Model Calculator, which can be downloaded from the same page as the Dividend Champions. (Just look toward the right side of that page.) Using Model B, I input an initial investment of $540 and monthly investment of $150 and quarterly investment of $450 (because not all DRIPs allow as little as $25). I then input modest growth assumptions of 5% for stock appreciation, a beginning yield of 2.27% and 5% dividend growth. The result:

Summary: At the end of 20 years, you would have:

Invested a total of............................ $71,940.00

and reinvested dividends of.............. 27,206.49

for a total cost basis of....................... 99,146.49

your capital gain would be.................60,313.57

and your total value would be......... $159,460.07

As you can see, even with modest growth expectations, such a program of dollar-cost averaging would more than double an investor's capital, leaving him or her in excellent shape a full decade ahead of the retirement investor cited in the previous model. Such is the beauty of compounding.

Conclusion

This model-building exercise was meant as another thought-provoking demonstration of using dividends and dollar-cost averaging to build assets prior to retirement and, perhaps more important, how such a method compares with alternatives, such as trying to time lump-sum investments. There are any number of variations that can be performed, such as using other Dividend Champions and Contenders and mixing in other sources. Hopefully, it demonstrates that the new Quarterly Schedule column in the spreadsheet (and PDF) can be a useful tool for planning purposes. As always, suggestions are welcome.

Disclosure: Author owns PNR, PII, AFL, and PX

Source: Dividend Champions: Steady-Stream Model 2