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This is the fifth in a series of articles which chronicle my struggle to establish a safe and growing stream of income in retirement. The first four are available here: I, II, III, IV.

In this series I present the results of the back testing I've done for the period between 2002-2011. I set out at the end of 2011 to put together a 30 stock portfolio and back test its performance year by year from 2002 to 2011. I was looking specifically for stocks with a track record of safety. If there were capitol gains then that was a bonus. As a retiree, I was more interested in a steady stream of income, protection from inflation and preservation of capital.

For those already following this series, let me start by clarifying a couple of areas where I believe by reading the comments there has been some confusion:

  • The stocks represented in this series were not selected by this author. They are presented because they matched the criteria set for the screening.
  • I do not own all of the stocks that emerged from the screening. I do indicate which stocks I currently hold at the end of each article. I made my purchase decisions based on an evaluation of value and my own personal investing goals.
  • 3.All stocks are presented for your personal review based on your own evaluation of value and your own investing goals.

Throughout the process of screening it has proven important at least to me to look at each stock's performance year by year during the period 2002-2011. I was particularly interested in performance during the severe bear markets of 2002 and 2008. I prefer the stocks that perform the strongest in the worst of times.

I set up a screen to look for all stocks paying dividends of at least 2% and had finished 2011 with 6% gains, gains equal to my returns for 2011. 200 plus stocks made the cut. I evaluated the individual performance of each stock for each of the ten years included in this testing period.

Emerging from my back testing were stocks that had gains while the S&P was down over 23% in 2002 and over 38% in 2008. More importantly, I found a large number of stocks that suffered less than half the lost of the S&P and had offset those losses by the gains they made the following year. The process, as tedious as it was, revealed information that will prove invaluable in the years ahead.

The stocks which emerged from my back testing are what I now refer to as my Superstars. Of that number, 48 have the distinction of being among the over 450 Dividend Champions, Challengers and Contenders complied by David Fish. These stocks did not cut their dividends during the bear markets of 2002 and 2008, they raised them. In fact they raised them each of the ten years I reviewed. I believe that every Dividend Growth investor must download this free list regularly and make it one of their considerations when considering a stock for purchase.

What follows is a chart of the fifth set of ten stocks from my research for your review. This go 'round I added TU for foreign exposure.

Stock

Ticker

Yield %

5-Year DGR %

10 Year Ave Return

Notes

Wisconsin Energy

WEC

3.2

17.4

15.1%

Vectren Corp.

VVC

4.8

2.4

7.4%

National Health Investors

NHI

5.4

5.3

20.2%

REIT

Unilever

UL

4.0

7.7

10.0%

PPG Industrials

PPG

2.4

3.4

8.3%

Tangier Shopping Centers

SKT

2.7

13.4

25.0%

REIT

Republic Service Group

RSG

3.3

14.4

9.5%

J.M. Smuckers

SJM

2.5

10.6

10.9%

Chubb

CB

2.3

9.8

9.8%

TELUS Corp.

TU

4.2

14.7

18.7%

The above chart includes current yield, 5 year dividend growth rates and average annual return for the 10 years of review. The average yield for this group of 10 stocks is just over 3.0%. The 5 year DGR for the group was 8.91% a year, clearly keeping up with inflation and then some. On top of that the group outperformed the S&P 500 every year in the period. During the same period, the group reported an average annual gain of 13.5% vs. an average annual gain in capitol for the S&P 500 of 0.9%.

In my next article I reveal more from my list of Safety Superstars. My final portfolio remains a work in progress. Hope to have each of you along for the ride.

Disclaimer: I am not a professional investment advisor or financial analyst. You need to do your own research and due diligence before you decide to trade any securities or other products.

Source: One Man's Search For A Safe And Growing Income Stream - Part 5