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<< Return to part 3

We are finally into fall, here in Bumpass, Virginia. The yellow tulip poplar leaves are falling and there is less humidity. Even the stock market has turned around since last week's debacle. What is this retiree investing in now? I saved the final sector in my retirees portfolio for financials. I was severely burned by this sector in 2008-2009 and haven't recovered from that yet. I am still down 40% in that sector, due to investment in banks. Rather than use traditional financial stocks, I thought I'd venture out into Mortgage Reits. After all, you can't do much worse than 40% down after 4 years of recovery. Therefore, I selected 2 stocks to compare—NLY and AGNC and found AGNC to have a superior record and higher yield for its shorter existence. Rather than bet the entire sector on this one stock, I decided to ease into it. The first 2 positions were purchased last week in the market swoon through limit orders for my granddaughter and grandson's college funds.

In the first three articles in this series, I detailed 9 stocks for 9 sectors of the S&P 500. (See part 1, part 2 and part 3 of the series.)

In this final installment, (Data from First Call, Thompson Reuters, Yahoo Finance and David Fish's CCC charts) I will discuss the financial sector representative and then address the entire portfolio and drip investments.

American Capital Agency Corp (NASDAQ:AGNC) – Financial sector (Mortgage REIT) This Mortgage REIT has paid a quarterly dividend since June 30, 2008. After starting at $.31, the dividend increased to $1, and $1.20 for the year. In 2009, it started out at $.85, then $1.50 and finally settled down to $1.40 for the last 2 quarters of that year and each quarter since then. The 3-year dividend growth rate is 30.6%. However, I would consider it to be flat since 2009 and wouldn't give the stock credit for dividend growth. Current yield is 20.5%. The ttm p/e ratio is 4.17, with long term earnings per share growth at 1.3%. Since this is a REIT, 90% of the earnings must be paid out as distributions to shareholders and new capital must be sought for growth. An excellent analysis of AGNC by Todd Johnson can be found here:

The price chart of AGNC for the past 3 years is shown below:

(click charts to enlarge)

Blended with the other 9 stocks in the Retirees portfolio, the price charts for the past 5 years are shown below:

From the chart above it can be seen intuitively that MCD and AGNC counterbalance NUE and CVX .

We next focus on the income stream seen by the investor in these stocks. With equal positions of $10k each, purchased 1 year ago, these stocks will produce a quarterly income stream as shown in the following table:

Stock

Quarterly Dividend Rate

Number of Shares

Quarterly Income

AGNC

$1.40

354.73

$496.63

INTC

$.158

482.39

$76.22

RTN

$.375

209.51

$78.57

VZ

$.475

377.07

$179.11

MCD

$.55

137.47

$75.61

NUE

$.36

249.12

$89.68

CVX

$.72

128.58

$92.58

ABT

$.44

209.77

$92.30

D

$.458

231.74

$106.14

PG

$.482

157.8

$76.06

In order to investigate the growth of the portfolio, due to dividend reinvestment, I will once again create a spreadsheet for only the last year (September 2010-September 2011). The first spreadsheet is for AGNC.

Stock Date of reinvest Div Rate #Shares Dividend Drip price #Shares purchased
Totals 409.26 $2,137.55 74.64
AGNC 06/21/11 $1.40 409.26 $572.97 $28.50 20.10
03/21/11 $1.40 390.48 $546.67 $29.10 18.79
12/29/10 $1.40 372.35 $521.29 $28.75 18.13
09/24/10 $1.40 354.73 $496.62 $28.19 17.62

The spreadsheet shows the growing income stream for the four quarters under the heading Dividend. It can be seen from the totals at the top of each column that the dividend stream was rising each quarter. The second spreadsheet shows all 10 sectors with dividends by quarter (note data for all stocks except AGNC taken from parts 1, 2, and 3 of this series).

Stock Quarter 1 Quarter 2 Quarter 3 Quarter 4 Totals
AGNC $496.62 $521.29 $546.67 $572.97 $2,137.55
INTC $73.32 $84.98 $85.70 $100.13 $344.13
RTN $72.83 $78.60 $90.78 $91.58 $333.79
VZ $150.46 $152.73 $154.78 $156.79 $614.76
MCD $81.65 $82.28 $82.96 $83.58 $330.47
NUE $91.67 $93.31 $94.08 $94.81 $373.87
CVX $87.29 $88.05 $96.10 $96.85 $368.29
ABT $82.74 $83.42 $91.85 $92.72 $350.73
D $108.97 $118.57 $119.88 $121.13 $468.55
PG $78.87 $79.47 $87.20 $87.92 $333.46
Totals $1,324.42 $1,382.70 $1,450.00 $1,498.48 $5,655.60

It can be seen from this table that the quarterly income rises as each stock contributes its rising dividends. It should be noted that the one year's total income $5655.60 came from an initial investment of $100k and is 5.65% yield. If the MREIT (AGNC) is removed from the totals, the yield is still 3.9% on the $90k remaining investment. The portfolio exceeds my minimum 4% yield for dividend growth stocks. These results have been graphed:

Conclusion: It is possible to save for retirement or college through drip investing. The yield on selected dividend growth stocks with long records of increasing dividends provides safety of principal, while compounding dividends each quarter. These ten stocks were selected with safety of principal in mind, during a time of global financial turmoil. It is critical that one does one's own due diligence on any investment.

Disclosure: I am long INTC, RTN, VZ, NUE, ABT, D, PG. My grandchildren are long AGNC in their college funds. I have a limit order out for MCD. I may initiate an order for CVX in the next 72 hours.

Source: Dividend Growth Stocks Perfect For Retirees- Part 4