In a recent series of articles, I have been sharing what has become known as "The Retirement Portfolio for Do It Yourselfers." This portfolio began in January of 2006 when my three kids and I decided to create an investment portfolio for them, with monies they received as part of an inheritance.
The portfolio began with 10 stocks. They were McDonalds (MCD), Coca-Cola (KO), Abbott Labs, (ABT), Johnson and Johnson (JNJ), Colgate Palmolive (CL), Kimberly Clark (KMB), AT&T (T), Exxon (XOM), Procter and Gamble (PG), and Walmart (WMT).
WHAT YOU NEED TO KNOW:
In my opinion, this portfolio of Dividend Growth stocks is appropriate for the following investors:
1. Older investors who are looking for companies that meet the need for an increasing income stream.
2. Younger investors who are just starting out and who are looking for companies that can be the starting point for their Dividend Growth portfolio.
3. Any age investor who is looking for an almost "set it and forget it" core holdings portfolio.
THE BACK STORY:
Initially, we invested $10,000 into 10 different companies on January 4, 2006. We decided to allow dividends to be reinvested in this portfolio and other than those reinvested dividends; we took a completely passive role.
As of December 31, 2011, the portfolio had grown to $173,999.57 with dividends reinvested. A few months previously to that time we decided that we would like to add additional companies to our portfolio and after looking at various opportunities in the market, we decided to purchase the following stocks: Emerson Electric (EMR), Illinois Tool Works (ITW), Aflac (AFL), Intel (INTC), and Harris Corporation (HRS).
Our goal was to purchase each of these five new positions with an initial investment of 10k per company. In order to have the money necessary to add these five new companies to the portfolio, the decision was made to trim our original 10 companies so that we could have the funds to invest in the new stocks. We were able to do that by, selling a portion of each of our original 10 companies on January 3, 2012.
On January 4, 2012, we placed market orders for the 5 new companies and had our portfolio complete, with $16564 in cash remaining for future opportunities as they might present themselves in 2012.
At the close of the markets, on Friday, January 6, 2012, our new portfolio looked like this:
We have completed the transition into the new portfolio and have a starting point as of January 6th, 2012 of roughly 10k per holding in that portfolio.
As we move forward, we will continue the practice of alerting you to what are plans are for additions to the portfolio, the results of quarterly dividends that are being reinvested, and any changes that we may make in this portfolio and most importantly, why we would be making them.
Now that we have a snapshot of the completed portfolio, I wanted to share with you the projections moving forward of the dividends expected.
HERE'S WHAT WE EXPECT MOVING FORWARD:
As a Dividend Growth Investor, I am interested in companies that have a history of increasing their dividends annually and at the same time grow those dividends at a rate faster than inflation.
Can I guarantee that these companies will continue to grow their dividends or that they will continue to grow them at a rate faster than inflation? Of course not. I can only go on the information that is currently available to me and here's what I expect from this portfolio, moving forward.
The portfolio will throw off $1300.77 in dividends with the first payments for 2012. This would project out at $5200 in dividends for the next 12 months, without any changes in dividend payment amounts in the coming year, and does not factor in the impact of reinvestment of those dividends, which would of course, increase the individual stock holdings by the dividends being converted into additional shares.
Even though we sold portions of the original 10 stock portfolio, I believe that we have been able to increase the amount of our annual income stream from the new portfolio and that with the dividend growth rates of these particular holdings, we will see that income stream increase in much the same way as the original portfolio did.
As we move forward, we will be reporting the income growth on a quarterly basis. In much the same way as the original 10 holdings, I would expect the dividends to be growing at a rate faster than inflation, as over the next 5 years.
In a nutshell, that's what dividend growth investing is all about. Increasing the income stream, reinvesting dividends into additional shares of stock in the companies owned until that dividend stream is going to be used for retirement income, and being in a position where any sale of a given position is done because of reduction or suspension of dividend payments in the future.
ONE FINAL THOUGHT:
For those of you interested in the performance of this portfolio from its inception on January 6th of 2012, through the market close of March 16th 2012, here is a table for your review.
As the quarter comes to a close, in the next two weeks, I can't say that the market will continue to advance or that we will see a correction. Frankly, I don't care either way.
This is not a trading portfolio. It is one to keep for a long time. The companies that make up the portfolio are solid Dividend Champions, Contenders and Challengers. As such, I believe that these stocks will continue to increase dividends, continue to grow their earnings to support those dividend increases, and will perform in exactly the way a Dividend Growth investor would expect them to do.
That is not to say, that if at any time one of these companies decides to suspend, reduce, or eliminate their dividend, that they will remain in the portfolio. They will be sold immediately.
I know that you can argue about the performance of companies after a dividend event change, but from my perspective, I won't give the company the benefit of a doubt. There are too many great Dividend Growth companies out there to replace these if need be.
As a Dividend Growth Investor, I am interested in companies that have a history of increasing their dividends annually and at the same time grow those dividends at a rate faster than inflation. Can I guarantee that these companies will continue to grow their dividends or that they will continue to grow them at a rate faster than inflation? Of course not. I can only go on the information that is currently available to me and here's what I expect from this portfolio, moving forward.