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Dividend growth investing
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Summary

  • 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.

Conclusion

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.

Disclosure: The author is long DE, TEVA, MO, LMT, AFL, AAPL, KKD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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