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Long-term horizon, dividend growth investing
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Well, it's been about six months since I gave my financial self to the light side of the Force: the strategy known as Dividend Growth Investing.

It's been an interesting journey so far, with only a couple of minor missteps, a few well-timed leaps and a realization that I have so much more to learn. I am Luke Skywalker ... and the many wiser, more experienced authors and commenters here on Seeking Alpha have become my Jedi masters.

OK ... enough with the hokey Star Wars theme. Let's talk about what I've done so far in my efforts to build what I hope will be a relatively safe portfolio of solid companies that grow dividends through good times and bad. Looking ahead about 15 years, the goal is to generate a dependable monthly income stream to accompany what my wife and I will receive in Social Security and pensions. The three simultaneous steps I'm taking:

1. Gradually selling off mutual funds in our traditional, rollover and Roth IRAs. So far, I have liquidated about half of what we had, usually selling chunks after "up" stretches in the market. The proceeds go into brokerage-account money funds. The idea is to always have substantial cash on hand for buying opportunities until my individual-stock portfolio is fully invested.

2. Establishing a wish list of companies I want to own, mostly coming from David Fish's ridiculously comprehensive list of Dividend Champions, Contenders and Challengers. Using numerous sources, I'm getting better at determining suitable entry points but I still need much improvement. (I especially struggle at finding proper valuations for MLPs and REITs.)

3. Buying stocks when opportunities present: market pullbacks, analyst downgrades, announcements of dividend increases, earnings surprises, etc. I also have bought some companies just because I wanted them, to mixed results. Here is my stock portfolio:


A few notes:

  • These individual stocks represent only about 20 percent of an overall portfolio that includes cash, mutual funds, bonds and ETFs. The percentages listed relate only to the individual-stock portion of my portfolio. Eventually, I want stocks to be at least two-thirds of my holdings.
  • Three of my four largest holdings (MMM, PG, GE) were established in 2008, long before I ever heard of the DGI strategy. They also are the only stocks I hold in non-retirement accounts. Going forward, I likely will pare down these three to bring them more in line with the rest of my portfolio. Why don't I just do it immediately? Because I really don't need more cash right now; it's already about 35 percent of my total portfolio.
  • PM was the first stock I bought as an "official" DG investor, followed by INTC. In retrospect, I believe I got PM at fair (or slightly under) value while I paid a little too much for INTC. Over time, I am confident I will be very happy with both.
  • The total yield of this portfolio is about 3.8 percent. Eventually, I'd like a yield of at least 4 percent.
  • I bought WAG near its 52-week low shortly after it announced it was increasing its dividend substantially.
  • I bought WM last week, as chronicled here, after an analyst downgrade caused a one-day, 5 percent plunge.
  • I recently bought the four REITs (HCN, O, NHI, OHI) in a two-day span. Together, they make up 12% of my current individual-stock portfolio.
  • Of these 14 holdings, three have lost value since I bought them: GE, INTC and KO. My only significant losses have been in GE. All are only paper losses, as I haven't sold anything.
  • I reinvest all dividends into each stock. When I have less money on hand, I might consider taking dividends in cash and deploying them as I see fit.

I have not yet decided how many companies I will own, though 40-50 seems right. Nor have I decided if I'll go with an equal-weight portfolio (i.e., 50 stocks of 2 percent each, 40 of 2.5 percent each, etc.) or if I'll give added weight to stocks I consider "core" holdings.

My wish list includes dozens of companies across a variety of sectors. It's an evolving list; as I do more research, I add and remove names. The goal isn't to own all of these companies because that would make my portfolio unmanageable. Besides, I might really like a company but might never own it if I consider it overvalued. And I'll lean toward 4-plus-percent yielders whenever possible.

The following wish list includes all the companies I'm tracking closely so that when something happens -- as with Waste Management's downgrade -- I am ready to move.

  • Consumer: GIS, HNZ, KMB, MCD, PEP, TAP, TGT, WMT.
  • Energy: BP, CVX, RDS.B, SDRL, XOM.
  • Health: ABT, AZN, GSK, JNJ, MRK, PFE.
  • Industrial: GPC, LMT, NUE, RGR, RTN.
  • Insurance: AFL.
  • Tech/Telcom/Media: BCE, MSFT, RCI, SJR, T, TU, VZ.
  • Tobacco: BTI, MO.
  • Utilities: AVA, D, DUK, ED, EXC, NEE, PNY, SO, SRE, VVC.

In the past couple of months, I came tantalizingly close to buying JNJ, LMT and RDS.B, my limit orders missing by only a few cents. On those days, I wasn't in a position to monitor prices, so I couldn't have paid a little more even if I wanted to. Either their prices will retreat in future pullbacks or I'll just have to look elsewhere.

(A pre-emptive note on using puts, calls and other options: I respect those who successfully implement this strategy, but I am not ready to do it ... so I ask proponents not to inundate me with comments suggesting it.)

As I grow more experienced, I hope to get better at walking the line between taking advantage of opportunities and being patient. Fellow DGI advocate "chowder" has convinced me that I should be a little more flexible so I don't lose a company over a few cents (or even a buck). I am going to keep that in mind in the future.

Yes, I consider chowder one of the many Yodas and Obi-Wans here on Seeking Alpha. May the Force be with us all. (Sorry, folks ... couldn't resist.)

Disclosure: I am long KO, INTC, PM, WAG, WM, HCN, NHI, OHI, O, COP, VOD, PG, GE, MMM.