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Summary

  • The “CCC lists” are a collection of dividend-growth stocks that have raised dividends for at least 5 years.
  • The “Dividend Dog“ strategy can be applied to any group of dividend-paying stocks.
  • Applying Dividend Dog methodology to the CCC lists should provide a list of undervalued, higher-yield, dividend-growth stocks.
  • Collecting the dividend income while prices rise to fair value should provide a nice bit of income and growth to your IRA.

Just What Are CCC DiviDogs, Anyway?

The US Dividend Champions lists of Champion, Contender and Challenger dividend growth stocks (aka CCC lists) generously shared by Seeking Alpha author David Fish have been in existence since 2008, and are the backbone of many retirement portfolios here on Seeking Alpha. The full lists didn't include the Challengers until 2010, and have been upgraded every year since then to include a gold mine of investing information.

The Dividend Dog investing strategy created by Michael O'Higgins in "Beating the Dow" is to find undervalued stocks by seeking out the 10 highest-yielding stocks at the end of the year in a collection of dividend-paying stocks; to put an equal amount of money into each stock on the first trading day of the year; to collect the dividends for the next year, and then reinvest in the next group of 10 undervalued stocks. The underlying premise is that the stocks will return to a more fair value over the year, thereby increasing in price while still paying a nice dividend.

How Would It Work?

Starting with the oldest list that included all 3 lists would be December 2010. Using the combined CCC lists to pick the 10 highest-yielding stocks at the end of 2010, there was a group of stocks that included 4 Master Limited Partnerships (MLPs, which I've highlighted in purple), 4 Real Estate Investment Trusts (REITs), a foreign stock (highlighted in green) that only paid semi-annually and 1 tobacco company stock. One of those REITs, Investors Real Estate Trust, was overdue for raising its dividend and was in the red, marked by David Fish with red dates on the list (I changed the name to appear in red, as well.)

(click to enlarge)CCCDogs2011_01

Maybe Some Guidelines?

Through analyzing the lists over the last few years, I discovered that around 80%-85% of companies that failed to raise their dividends annually went into the red zone on the CCC lists first, so that was the first obvious rule. No sense investing in a company that could be cutting its dividend at any time instead of growing it! I shared how this realization came about in my DGI Lite series of articles, a portfolio that originally mirrored my own IRA.

A simple strategy is always the easiest to follow. MLPs with their complicated tax structure or foreign stocks with fluctuating currency dividends that could take an unrecoverable chunk out of the dividend could be eliminated. Also, stocks that didn't pay quarterly wouldn't provide dividends often enough and too much might happen in between dividends, so they could also be eliminated from consideration. It looks like four basic guidelines would rule out unsuitable stocks and keep it simple:

  1. No Red Zone stocks
  2. No Master Limited Partnerships
  3. No Foreign Stocks
  4. No Stocks that paid less than quarterly

That eliminated 6 stocks, so back to the lists. It would take another 14 stocks to come up with 10 non-MLP, non-foreign, non-red zone stocks that paid at least quarterly.

(click to enlarge)CCCDogs2011_02

The CCC DiviDogs 2011

These following 10 stocks fit the strategy, highest to lowest yield: Vector Group (NYSE:VGR), Senior Housing Property Trust (NYSE:SNH), Universal Health Realty Trust (NYSE:UHT), Omega Healthcare Investors (NYSE:OHI), W.P. Carey & Co (NYSE:WPC), CenturyLink (NYSE:CTL), Altria Group (NYSE:MO), Getty Realty Corp (NYSE:GTY), United Community Bancorp (NASDAQ:UCBA), and Pitney Bowes (NYSE:PBI).

Prices are taken from the December 2010 CCC lists and represent closing price on the last trading day of the year. The share prices might vary by a few cents as the orders filled on the first trading day of the new year, but the selections are still made at the end of the year. Buying $1000 worth of each company for a total of just about $10,000 would look like this:

CCCDogs_2011List

Looking back on these stocks from 2014, there are some excellent companies that would have been acquired at a very nice price and paying a very nice yield, and would still be churning out the dividends today. There are a few that have fallen off the dividend-growth path, but before delving into the added dividends, what would have happened to the capital growth if that portfolio had been left on the back burner until now?

I'm glad you asked.

Here are the CCC DiviDogs 2011 set up in Seeking Alpha's very useful portfolio feature as of the date this article was written on 8/15/14, a fairly average market day.

(click to enlarge)CCCDogs2011_2014_0815

It looks like there are a couple of big losers over the last 3 years and 8 months, but overall the portfolio has had 33.21% just in capital gains before adding in the dividends. (Vector Group pays an additional 5% annual stock dividend in Q3, which would account for the additional 8 shares in VGR.) Not too bad, so would that work in other years? Using that same methodology, 3 more portfolios can be created in 2012, 2013 and 2014.

The CCC DiviDogs 2012

Here's the original 12/31/11 CCC list, and once again there are several stocks in the red, a dozen MLPs, and 1 company that only pays annually that would be eliminated.

(click to enlarge)CCCDogs2012_01

The CCC DiviDogs 2012 list would look like this. Followers of the DGI Lite portfolio will recognize 8 out of those 10 stocks, chosen 2 months earlier.

(click to enlarge)CCCDogs2012_List

The CCC DiviDogs 2013

Continuing with the same method of choosing the 10 highest-yielding stocks following the simple guidelines above would create this list for 2013.

(click to enlarge)CCCDogs2013

Many of the same names seem to stay on the lists over several years, which is a good sign for the increasing income from the dividends.

The CCC DiviDogs 2014

And finally, the list for 2014.

(click to enlarge)CCCDogs2014

This year is clearly the Year of the REITs! Still, there are 2 stocks that have been on all 4 of the lists: OHI and VGR, and Triangle Capital (NYSE:TCAP) for 3 years. Predictably in this bull market, prices have been going up for the last 3 years, and the average yield has been going down. So how would income hold up?

There are several ways to increase income from dividend yield to take advantage of the beauty of compounding. The original Dogs of the Dow strategy just collected the dividends throughout the year, and then sold all the stocks and started over with the dividends added in for a larger amount of capital.

There are three other possible scenarios that I explored in Catching Up With The DGI Lite DiviDogs, such as collecting the dividends each quarter and reinvesting in the highest-yielding stock at the end of the quarter; reinvesting the dividends in the issuing stocks; and selling any stock that cuts the dividend and replacing it with the next highest-yielding stock on the CCC lists at that time. I'll do that with each of the portfolios in the next 4 articles.

Next up, putting the 2011 DiviDogs to the test!

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Adding Income And Growth To Your IRA With The CCC DiviDogs