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In Part I, I discussed and presented portfolios for types 1 and 2 strategies-- Income Investing and High Yield Investing. In Part II, types 3 and 4 will be discussed: High Growth Investing and Long Term Growth Investing. Readers who have not read Part I, please start there, since it contains important information necessary in order to better follow the rest of the article.

The Six Types

  1. Income Investing (High / Very high current yield; lower DGR)
  2. High Yield Investing (Very high current yield; lower DGR)
  3. High Growth Investing (High / Very high DGR; lower current yield)
  4. Long Term Growth Investing (Mid-range current yield; mid-range DGR)
  5. Dividend Diversity Investing (A combination of the first four types)
  6. Income Through Funds Investing (Very high current yield through funds)

The Definitions

For the purpose of this article I use the following ranges as a guideline for dividend yields and growth rates. However, these limits are not absolute and will be liberally crossed on either side when otherwise desirable or appropriate.

Low

Mid-Range

High

Very High

Dividend Yield %

2.00 - 2.99

3.00 - 4.99

5.00 - 6.99

7.00+

Dividend Growth Rate %

0 - 10

11 - 19

20 - 29

30+

-

Type 3 - High Growth Investing (High / Very high DGR; lower current yield)

In the High Growth Investing Strategy, we are willing to settle for stocks with lower starting yields now, as long as they have a solid and proven potential and consistency to deliver high dividend growth, as well as decent capital gains over the longer term.

The logic is, not only will such stocks eventually catch up with the current high-yield, slow-growers, but will surpass them over time. On top of that, the vast majority of higher dividend growth stocks are high earnings per share (EPS) growers in the first place, which should result in respectable capital gains as well.

My stock picks for the High Growth Investing portfolio have proven that they can deliver outstanding sustainable growth over the long run and have, by far, the highest Return on Equity (ROE) of any of the other portfolios in this article. Companies like Lockheed Martin (LMT), Yum! Brands, Inc. (YUM), and Accenture PLC (ACN) have shown they are among the best when it comes to growth, profitability, and efficiency.

Please note that since the objective is dividend investing, I have enforced a 2% minimum dividend yield, so some great companies with strong growth rates such as International Business Machines (IBM), AmerisourceBergen Corp. (ABC), and Novo Nordisk (NVO), did not make it into this portfolio.

High Growth Investing Portfolio

Data as of close Friday, 12/16/2011

Sym

$ Price

%

Dividend

Yield

P/E

Forward

% ROE

5 Year

Avg.

Price/FCF

5 Year

Avg.

$ Mil

Market

Cap.

Potency

Score

LMT

77.10

5.24

9.95

56.51

11.89

24,810

28.86

DRI

43.68

3.99

11.17

24.03

17.33

6,276

23.08

RCI

35.45

3.95

11.10

24.38

20.21

19,345

24.20

BBL

57.15

3.53

6.76

36.75

15.62

168,665

16.18

HRS

34.29

3.27

6.52

20.55

16.82

4,173

16.79

GES

28.84

2.89

8.60

29.47

24.57

2,499

17.01

CL

89.89

2.60

16.35

9972

21.37

43,691

12.96

TXN

28.69

2.43

15.20

25.91

18.52

33,973

12.49

ACN

54.15

2.41

12.71

65.00

12.90

40,574

16.09

YUM

57.70

1.99

17.90

127.46

24.80

25,885

12.75

For a more Aggressive

Portfolio switch in:

For a more Conservative

Portfolio switch in:

STRA

INTC

BLK

AZN

Type 4 - Long Term Growth Investing (Mid-range current yield; mid-range growth rate)

The Long Term Growth Investing Strategy requires both a respectable current yield as well as an above average growth rate. The goal of this strategy is to be smart about it and hover in the middle ranges, staying away from extremes on either the yield or the growth rate. The argument for the strategy is that high dividends are often unsustainable and once a stock freezes or cuts its dividend, its price will get hit hard before the investor can get out of it.

The argument continues, on the other hand, that too high of a dividend growth rate is also unsustainable, especially if the current yield is on the high side, which eventually can hurt the stock. The strategy's objective is to be in those stocks with the best potential to keep the dividend growing consistently for the next decade and beyond.

Long Term Growth Investing Portfolio

Data as of close Friday, 12/16/2011

Sym

$ Price

%

Dividend

Yield

P/E

Forward

% ROE

5 Year

Avg.

Price/FCF

5 Year

Avg.

$ Mil

Market

Cap.

Potency

Score

CTL

35.26

8.20

13.81

10.98

8.54

21,759

18.66

AZN

45.15

5.98

6.26

39.32

10.20

59,293

19.38

LMT

77.10

5.24

9.95

56.51

11.89

24,810

28.86

NVS

55.35

4.36

10.00

18.83

13.56

126,887

15.62

RCI

35.45

3.95

11.10

24.38

20.21

19,345

24.20

COP

68.40

3.85

8.72

7.77

22.69

97,388

9.02

NUE

38.99

3.74

12.36

18.87

15.15

13,045

12.32

INTC

23.23

3.60

9.58

16.06

17.60

124,057

14.32

MCD

97.49

2.87

16.75

27.31

20.52

98,127

11.90

CL

89.89

2.60

16.35

99.72

21.37

43,691

12.96

For a more Aggressive

Portfolio switch in:

For a more Conservative

Portfolio switch in:

TEF

T

DRI

JNJ

Conclusion

This is the strategy that most dividend growth investors adhere to. The sights are set on the long term. This strategy lets the portfolio grow, slowly but surely.

The stock picks for this portfolio include some solid healthcare companies at bargain prices: AstraZeneca PLC (AZN) and Novartis (NVS), with P/E ratios of 6.2 and 9.5 respectively. It also includes dividend stalwarts like CenturyLink, Inc. (CTL), Nucor Corporation (NUE), and Intel Corporation (INTC).

In Part III, I will explore dividend investing strategies Type 5 and Type 6 and will present portfolios for each.

Source: 6 Types Of Dividend Investment Strategies, Part II

Additional disclosure: I may initiate a long position in one or more of the stocks discussed over the next 72 hours.