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Dividend growth investing
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  • I continue to transform my former “Portfolio Without a Plan” into a Dividend Growth Portfolio.
  • I have initiated new positions in five great companies so far this year.
  • I have learned some lessons along the way.

The Transition That Has Been Taking Place For Five Months So Far

For the past 11 years, I have set aside part of my salary to invest in individual stocks, but I did not have a serious plan in place. I made a list of big companies, and every month I would pick one or two of them almost randomly and buy them. Sometimes things went great (like Apple (NASDAQ:AAPL) in early 2009), and other times not so very great (like Krispy Kreme (NYSE:KKD) in early 2004).

Since the beginning of 2014, I have been making slow, methodical changes to my portfolio so that it will include more dividend growth stocks. Every month I consider selling something that pays no dividends or pays low dividends and replacing it with a dividend growth stock. In addition, I am adding new money each month, and making sure that it goes toward dividend growth stocks.

So far I have added new positions in five stocks.

Deere & Company (NYSE:DE)

In January, I made my first purchase, which was DE. With a 10-year dividend growth rate of about 16%, DE has kept the dividend payout ratio low. For the past ten years, the payout ratio has been at or below 25% every year except 2009. I was a little bit disappointed when DE did waited a little while to raise its dividend in early 2014, but was glad to see one recently in line with the long term average. The current yield of about 2.6% is not the highest out there, but I believe that it is in a good position to grow in the future. I will add more when I have more funds available.

Teva Pharmaceuticals (NYSE:TEVA)

My next new purchase was TEVA, which has a current yield of about 2.3% and a 10-year annual dividend growth rate of about 23%. The Payout ratio has also been low. Since I have been adding new funds into my Roth IRA in the first half of the year, this purchase was inside that account.

I learned my mistake only after the fact. TEVA is the first foreign stock that I have ever purchased. TEVA is based in Israel, and the Israeli government withholds a portion of dividends which cannot be used to offset U.S. taxes if the dividends are received inside a tax-sheltered account. I want to buy some more TEVA, but it will be when I have cash available in my taxable account. Eventually, I will also unload my TEVA from my Roth IRA.

Altria Group (NYSE:MO)

Although MO may be slightly overvalued, it pays a nice dividend of about 4.7%, and it has been increasing its dividends at a steady rate since the years when it was spinning off parts of itself. Of course there is the concern of the dwindling customer base. I quit smoking in 1999, so I am part of that problem, but since I quit smoking, the value of MO has gone up, even after you take away the value from its spin-offs. I am not planning to add more MO at this time, but it is good to have the nice quarterly dividend on the shares I own now.

Lockheed Martin (NYSE:LMT)

LMT might also be slightly overvalued, but its annual dividend growth rate is amazing: about 23% over the past ten years. The current dividend is also nice: 3.2%. Over the past decade or so, LMT has repurchased over 25% of its shares. Although that rate slowed down in 2013, the authorization of more buybacks that year will hopefully benefit shareholders going forward. I have no plans to add more shares in the near future, but I will at a later date if the price falls back some.

AFLAC Incorporated (NYSE:AFL)

My most recent new acquisition was AFL. With a current dividend yield of 2.4% and recent dividend increases in the single digits, it may not seem like the most amazing investment. However, the payout ratios are still rather low, so I think it has a strong chance of continuing increases long into the future. The stock is definitely trading at a good value, so it has potential to rise quite a bit from where it is today. I will most likely add more AFL to my portfolio sometime soon.


I have been watching my dividend income rise quite a bit this year, as I have been adding new money to my portfolio and repositioning some of my investments. I still have a lot of holdings from purchases I made in years past to make decisions about selling or holding over the next few months. I am still learning a lot about dividend growth investing, but I think things are going well so far.

Source: 5 Stocks I Have Added To My Dividend Growth Portfolio In 2014