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Summary

  • Many retired investors are risk averse.
  • My risk aversion set me on a quest to find the safety dividend growth stocks since 2002.
  • These stocks deserve consideration by anyone building an income stage portfolio.

Welcome to Part Two of my annual review of a select group of stocks I call my Dividend Safety Superstars.

During my first year as a self directed investor in 2011, I was soaking up information like a sponge and one of the places I went nightly for months was Mad Money on CNBC.

One night I had the occasion to be watching Jim Cramer. On the night in question, Cramer was interviewing the CEO of Weyerhaeuser (NYSE:WY). When the interview began, the right hand corner of the screen caught my eye. It showed the stock ticker and its gains and losses for key periods. In the case of WY, everything was in the red. The stock had lost money that day, that month, for 3 months, 1 year, 3 years, 5 years and even 10 years. I remember thinking to myself, buying that stock would be a real leap of faith.

Then it dawned on me. Why not look for those stocks that were winners more often than they were losers. I chose the period 2002-2011 because it included two bear markets.

I also remember thinking ... Now, I know that past performance is no indicator of future performance. How many times have I heard that before?

Suddenly I had a second thought. One that just wouldn't go away: What if it is? And with that, began my search for those stocks that had safely outperformed during the worst of time.

In Part One of this series, we looked at the safest of the safe. If you haven't yet reviewed the stocks in Part One it is available here. Now it's time we move on to our list of Level Two stocks and see how they fared.

To qualify for Level Two, stocks must possess the following:

  • Each must be a Dividend Champion, Challenger or Contender yielding 2% or more.
  • Each must have incurred a loss less than the S&P 500 during 2008.
  • Each must have incurred no more than three down years during the period 2002-2013.

Please note that the above are minimum standards. Many of these stocks just missed Level One honors.

The following 36 qualified as Level Two stocks at the start of 2013:

Stock

Ticker

Yield %

5 Year

DGR

%

10 Year

Ave Return

2013

Return

AFLAC***

AFL

2.42

8.1

5.75

28.43

Altria***

MO

4.62

9.2

17.31

27.96

AT&T***

T

5.19

2.4

7.83

9.64

AstraZeneca**

AZN

3.85

13.9

6.91

31.52

Baxter International****

BAX

2.8

16.4^

10.16

7.22

BHP Billiton Pic.

BBL

3.71

10.6

16.77

-8.43

Chubb***

CB

2.18

6.8^

11.98

30.63

Conoco***

COP

3.45

15.5^

13.10

26.49

Stock

Ticker

Yield %

5Year

DGR %

10 Year

Ave Return

2013

Return

Dominion Resources**

D

3.48

6.6

11.04

29.23

Dynex Capitol

DX

11.63

8.52

-3.39

Enbridge Energy Ptnrs.***

EEP

7.01

2.3

8.47

14.85

Genesis

GEL

3.86

10.6^

21.46

52.81

Hasbro***

HAS

3.2

13.0

12.32

56.57

Heinz

HNZ

Kimberly Clark**

KMB

2.99

7.4

5.7

18.80

Magellan Midstream Partners***

MMP

2.99

17.6^

23.51

51.35

National Retail Properties

NNN

4.63

1.6^

11.54

2.34

NextEra Energy**

NEE

2.98

10.0^

13.96

27.56

ONEOK Inc.**

OKE

3.47

16.5

22.95

48.91

Stock

Ticker

Yield %

5-Year

DGR

%

10 Year

Ave Return

2013

Return

Pepsi***

PEP

2.97

12.2^

6.82

24.49

Plains All American***

PAA

4.45

5.9^

16.82

19.57

PPL Corp.***

PPL

4.25

1.9^

8.36

10.23

Reynolds American**

RAI

4.49

4.7

18.18

26.65

Rogers Communication***

RCI

4.16

14.7

17.84

3.10

Sysco****

SYY

3.09

3.7

2.19

18.48

W.P.Carey

WPC

5.63

10.4^

11.26

24.35

Waste Management**

WM

3.36

2.8

6.95

37.31

Westar Energy**

WR

3.88

3.8^

9.46

17.16

Wal-Mart***

WMT

2.5

16.1^

4.59

18.09

Stock

Ticker

Yield %

5Year

DGR

%

10 Year

Ave Return

2013

Return

Caterpillar***

CAT

2.4

8.4^

12.33

3.26

Duke Energy***

DUK

4.39

2.7

11.09

13.01

Piedmont Nat. Gas*

PNY

3.58

3.6^

8.45

9.87

Sempra Energy**

SRE

3.98

8.9

13.37

30.08

UNS Energy

UNS

3.17

13.8

12.06

45.19

Stock

Ticker

Yield %

5-YearDGR

%

10 Year Ave Return

2013 Return

Air Products & Chemical**

APD

2.57

10.7%

11.12

36.42

Southern Company***

SO

4.8

3.9

7.69

.73

Of the above 36 Stocks, 3 begin 2014 once again as Dividend Growth Safety Superstars. As a group they finished with a capital gain average of 15.24% beating their 10-year average of 14.26%. If you bought equal positions at the end of the year, your portfolio would yield 4.47%.

Of the stocks that reign as Superstars, I am proud to personally own 17 between my portfolio and that of my wife's. There are a number of reasons why I don't own them all. Among my personal reasons are the following:

  • Some like Caterpillar - CAT and BHP Billiton - BBL have high betas. I have a problem comfortably owning stocks with wide swings up or down.
  • Many yield less than the 2.8 yield I currently require when buying for an income-oriented portfolio.
  • Many were overvalued when I was buying. Some still are.
  • For the sake of a balanced portfolio I needed to purchase stocks in sectors not represented among this group like tech.

Those of you considering a dividend-growth portfolio should certainly give the over 60 stocks in both parts of this series your due diligence.

Be certain to give preference to those that are fairly or undervalued. I also recommended that a stock purchase you make be in accordance with a personal portfolio business plan fashioned from your investing objectives and personal risk tolerance. If you'd like a look at mine, it's available here.

Thanks again for reading, for commenting and for being such an important part of my investing education over the past year.

Part Three of this series. coming soon was prompted by many of the comments generated in the article Retirees Please Don't Index, You Deserve Better Than Average [View article] Here's just one:

David Van Knapp's portfolio first established in 2008 is a few years old during a period of record low interest rates and one of the rare periods where dividend yields were consistently above bond yields.
Check back in around 15 years before drawing conclusions... not based on subjective criteria. How in the world would we know how these portfolios would work over longer period of times?

Source: A Current Review Of Dividend Safety Superstars - Part Two