Diversification, the number of stocks owned, and overall retirement strategy will vary greatly between individual investors, but I feel that the Dividend 30 is a great strategy to help ensure a prosperous retirement for investors still several years away from retirement.
I believe that dividend paying stocks should comprise a large percentage of an investor's stock portfolio. How large of a part will vary based on individual investor's needs and desires.
In this article, I will review a strategy that I believe will lead to long-term success, focusing on the accumulation of a diversified portfolio of 30 dividend paying stocks over a number of years.
The portfolio of 30 stocks will contain six different components, each one offering a different type of dividend paying stock.
One component of this strategy is to obtain 5 Dividend Aristocrat stocks. To be named a Dividend Aristocrat, a stock has to meet the following criteria:
- Has to be a member of the S&P 500
- Must have increased dividends for at least 25 consecutive years
- Must have at least $3 billion in market capitalization
- Must have an average trading volume of $5 million over the past six months
There are currently 54 stocks that are classified as Dividend Aristocrats. To help determine specific stocks within this component, you may want to consider taking a look at the following articles to see the best performing and worst performing Dividend Aristocrat stocks over the past five years.
Another component of this strategy is to obtain 5 Dividend Champion stocks. Dividend Champion stocks are also a group of stocks that have raised dividends for at least 25 consecutive years. To see a detailed explanation of the difference between Dividend Champion stocks and Dividend Aristocrat stocks, take a look at this article by another SA author.
There are currently 106 stocks classified as Dividend Champions. The list is created and updated by David Fish and can be found here.
To help determine specific stocks within this component, you may want to consider taking a look at the following article I wrote back in April that ranked the best Dividend Champion stocks based on a number of various criteria.
Another component of this strategy is to obtain 5 Dividend Contender stocks. These stocks are similar to the Dividend Champions, but instead of continuous increases in dividend for at least 25 years, these stocks have seen increases for at least 10 years.
I am in the process of writing a series of articles ranking these stocks in the same way I ranked the Dividend Champion stocks, but with an updated metrics/weighting system.
Another component of this strategy is to obtain 5 Dividend Challenger stocks. These stocks have seen continuous increases in dividends for at least 10 years.
These stocks don't come from any published list, but consist of any stock that yields higher than 6%.
Just like with the high yielders, these stocks don't come from a specific list, but they are stocks considered to be currently undervalued based on factors such as trailing/forward PE ratios.
- 1) Consistently add to your portfolio
For the purpose of this article, I will concentrate on a scenario in which an investor is 15 years away from retirement. The strategy is fairly simple, so it can be easily modified based on the actual number of years away from retirement an investor actually is.
The main goal is to have 30 dividend paying stocks in your portfolio when you retire, so with 15 years to do this, that equates to adding 2 stocks per year. A perfect time for many investors to do this is with year-end bonuses and/or tax returns.
- 2) Reinvest dividends
Another concept of this strategy is that investors should not need to rely on income from these investments until retirement. This way, dividends can be reinvested until retirement occurs.
A strategy I like to employ related to dividend reinvesting is to use dividends from high yielding stocks to pay for additional shares of stocks with high dividend growth. An example of this would be if I had investments in both Navios Maritime Partners (NYSE:NMM) and Disney (NYSE:DIS) (Of course, this strategy may not work for everyone based on if investments are within IRAs, etc.).
While Navios Maritime Partners' yield of over 9% is more attractive than Disney's 1% yield, Navios Maritime Partners' dividend growth has only been 10% over the past five years, while Disney's dividend has grown 145% over the same period.
- 3) Diversify within each component
Each component of your dividend portfolio should contain various types of stocks based on industry sector and global region.
- 4) Focus on fairly priced to undervalued stocks
When adding stocks, make sure you avoid overvalued stocks based on historical prices, along with prices of a stock's competitors. Overvalued stocks can significantly limit future returns.
- 5) Monitor your investments
Part of the reason I selected 30 stocks for this strategy is that I feel it is a large enough number to offer adequate diversification, while still being a low enough number for most investors to still actively monitor their investments.
This doesn't mean that you have to monitor each and every stock for hours a day, but it does mean that you should spend at least 30 minutes a month researching/monitoring each individual stock. 30 stocks means that you can spend just 30 minutes a day each month on one stock and still be able to cover your entire portfolio each month (with a bit of extra time in February).
Monitoring does not have to focus solely on whether or not you want to keep holding a stock or sell it. It can also involve whether or not you want to stop/start reinvesting dividends in a specific stock. Sometimes when a stock's price, PE ratio, etc., get too high, you may not want to sell the stock, but it's possible you may want to stop adding more shares of it, especially if you have undervalued/low PE stocks in your portfolio you could add to.
Example of a bad portfolio
|Clorox (NYSE:CLX)||Consumer Defensive||USA|
|Procter & Gamble (NYSE:PG)||Consumer Defensive||USA|
|Sysco (NYSE:SYY)||Consumer Defensive||USA|
|Target (NYSE:TGT)||Consumer Defensive||USA|
|Kimberly-Clark (NYSE:KMB)||Consumer Defensive||USA|
|Altria Group (NYSE:MO)||Consumer Defensive||USA|
|Coca-Cola (NYSE:KO)||Consumer Defensive||USA|
|Colgate-Palmolive (NYSE:CL)||Consumer Defensive||USA|
|Hormel Foods (NYSE:HRL)||Consumer Defensive||USA|
|PepsiCo (NYSE:PEP)||Consumer Defensive||USA|
|Casey's General Stores (NASDAQ:CASY)||Consumer Defensive||USA|
|Costco (NASDAQ:COST)||Consumer Defensive||USA|
|General Mills (NYSE:GIS)||Consumer Defensive||USA|
|J.M. Smucker (NYSE:SJM)||Consumer Defensive||USA|
|Kellogg (NYSE:K)||Consumer Defensive||USA|
|ConAgra Foods (NYSE:CAG)||Consumer Defensive||USA|
|Dr Pepper Snapple Group (NYSE:DPS)||Consumer Defensive||USA|
|Kroger (NYSE:KR)||Consumer Defensive||USA|
|Mead Johnson Nutrition (NYSE:MJN)||Consumer Defensive||USA|
|Phillip Morris International||Consumer Defensive||USA|
|Resource Capital (NYSE:RSO)||Real Estate||USA|
|Annaly Capital Management (NYSE:NLY)||Real Estate||USA|
|Hospitality Properties Trust (NYSE:HPT)||Real Estate||USA|
|Medical Properties Trust (NYSE:MPW)||Real Estate||USA|
|ARMOUR Residential (NYSE:ARR)||Real Estate||USA|
|Prospect Capital (NASDAQ:PSEC)||Financial Services||USA|
|Arlington Asset Investment (NYSE:AI)||Financial Services||USA|
|New Residential Investment (NYSE:NRZ)||Real Estate||USA|
|PennyMac Mortgage||Financial Services||USA|
|C&F Financial||Financial Services||USA|
This selection of stocks makes a poor overall portfolio. Only US stocks are included within the portfolio and only three different industry sectors are included. Look below for a much better example of a balanced portfolio using the Dividend 30 strategy.
Example of a good portfolio
|AT&T (NYSE:T)||Communication Services||USA|
|Consolidated Edison (NYSE:ED)||Utilities||USA|
|Leggett & Platt (NYSE:LEG)||Consumer Cyclical||USA|
|Abbott Laboratories (NYSE:ABT)||Healthcare||USA|
|Air Products & Chemicals (NYSE:APD)||Basic Materials||USA|
|Exxon Mobil (NYSE:XOM)||Energy||USA|
|McCormick (NYSE:MKC)||Consumer Defensive||USA|
|HCP (NYSE:HCP)||Real Estate||USA|
|ACE (NYSE:ACE)||Financial Services||Switzerland|
|Axis Capital Holdings (NYSE:AXS)||Financial Services||Bermuda|
|BHP Billiton (NYSE:BHP)||Basic Materials||Australia|
|Canadian National Railway (NYSE:CNI)||Industrials||Canada|
|Teva Pharmaceutical (NYSE:TEVA)||Healthcare||Israel|
|China Petroleum (NYSE:SNP)||Energy||China|
|China Mobile (NYSE:CHL)||Communication Services||Hong Kong|
|Copa Holdings (NYSE:CPA)||Industrials||Panama|
|Telenor (OTCPK:TELNY)||Communication Services||Norway|
|Navios Maritime Partners||Industrials||Monaco|
|Linn Energy (NASDAQ:LINE)||Energy||USA|
|Terra Nitrogen (NYSE:TNH)||Basic Materials||USA|
|Kinder Morgan Energy (NYSE:KMP)||Energy||USA|
|Administradora de Fondos (NYSE:PVD)||Financial Services||Chile|
|Dean Foods (NYSE:DF)||Consumer Defensive||USA|
|Federal Signal (NYSE:FSS)||Industrials||USA|
|Barnes Group (NYSE:B)||Industrials||USA|
|Caribbean Utilities (OTC:CUPUF)||Utilities||Caymen Islands|
|Deere & Co. (NYSE:DE)||Industrials||USA|
This portfolio of 30 stocks contains stocks from 11 sectors and 15 different countries, with 16 of the thirty stocks still US stocks.
While I don't believe that any single retirement strategy is right for every investor, I do believe that investors who make dividend stocks a significant portion of their portfolio are on the right track. And I believe that the Dividend 30 strategy is a great way to make dividend investing a valuable resource.
Having a mix of 30 stocks containing Dividend Aristocrats, Dividend Champions, Dividend Contenders, Dividend Challengers, high yielders, and undervalued dividend paying stocks that cover a significant number of industry sectors and countries will provide a nicely diversified portfolio, that I believe will lead to long term results. As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.