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Adam Galas
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I am a 27 year old who has been passionate about investing since my dad introduced me to this way of life at the age of 12. As I grew as an adolescent I used my life savings to try to earn my fortune in the thrilling world of high finance. Along the way I've made and lost several small fortunes... More
  • Show Vs Grow Part 1: High Yield Vs Dividend Growth; An Experiment To Determine Which Approach Is Best 1 comment
    Feb 13, 2014 9:55 AM | about stocks: ECL, RGLD, HRL, TJX, WBA, RAVN, PX, CHD, ANDE, ATR, BEN, CAH, CASS, CASY, CBRL, CRR, DCI, FDS, HCC, JKHY, LOW, MCD, MON, NKE, NUS, OZRK, PB, ROP, ROST, SEIC, SYK, TIF, WMT

    Among dividend investors, few debates can get more heated than which approach is best, high yield, low growth portfolio vs. a lower yield but faster dividend growth approach. The basic arguments for each side are as such:

    High Yield/Low Growth:

    Positives: shows you the money fast, your returns are locked in, deposited straight to your account and no future downturn can change the fact that you have cash on hand, to pay expenses or to reinvest as you see fit, the ultimate flexibility.

    Negatives: higher yield typically means higher risk and or BDC,mREIT, REIT or MLP, with potential tax preparation headaches.Taxes on dividends/distributions must be paid. Share price is almost entirely dependent on dividend, so if that is cut, the price will take a pounding.

    Low Yield/High Growth:

    Positives: lighter tax hit, appreciation of capital more likely as yields on long term dividend growers is pretty stable over time.

    Negatives: much of overall return is tied up in capital gains that can be wiped out quickly in a market panic. Bad luck/timing means you might be forced to sell at the market low to pay expenses instead of using dividend cash flows.

    Which approach is best and how much do these two approaches really differ? Well my fellow Seeking Alpha contributors make good arguments on both sides:

    High growth bull:

    High Yield bull:

    Of course who you are and what your goals/needs are will likely affect what is right for you. However for the long term investor, those with 20+ years, which approach is best? Alternatively is the truth somewhere in the middle? I propose a simple, but thorough and detailed experiment to see which approach, or mix of approaches, stands victorious when pitted against each other in real world portfolios.

    Here is an experiment: 3 portfolios tracked through Morningstar,with all dividends automatically reinvested. $1,000 position (virtual money) into each: For reasons of length the description of only the first portfolio will be discussed in part 1, with the other being described in part 2. In addition, I will go over each company in greater detail in a series of follow up articles.

    For the purposes of the experimental portfolio, I will purchase $1000 in each stock. The timing of when to purchase will be based on basic technical analysis. If RSI, slow stochastics and MACD indicate the stock are undervalued, and the momentum is turning positive, I will purchase that stock right away. If the technical indicators indicate likely short-term price declines, then I will place the stock on a watchlist and monitor it on a weekly basis, purchasing during the next short term minimum.

    Here are the experimental portfolios I will be running, with 2 and 3 explained in part 2.

    1. Fastest projected dividend growth, listed below.

    2. High Yield, High quality, meaning that I have pre-screened the candidates to exclude those that will face declining dividends in rising interest rate environments, (no mREITS) or natural expiration dates, (no trusts). While CEFS will be allowed, I will make sure to screen out those that do return of capital that is destructive to long term NAV.

    3. Combination of portfolios 1,2

    Highest Dividend Growth Portfolio

    Based on the Nasdaq US DIVIDEND Achievers Index. This index of 146 companies requires non penny stocks that trade in the US and have 10+ consecutive years of dividend growth. All told the yield on this index is 1.85%, with an average of 11.16% annual dividend growth over 28.36 years.

    For my Dividend Grower portfolio, I chose the 30 companies with the fastest annualized dividend growth rate since they qualified for the index. I verified that they each had double-digit dividend growth in the last 5 years. If they failed this test then I replaced them. This is to ensure that each of the portfolio companies is still growing dividends quickly, and that dividend growth hasn't stalled.

    Here are the basic stats on this portfolio:

    This portfolio of 46 equally weighted companies has a yield of 1.65% and has been growing its dividends by 16.34% annually over the last 25 years. These companies are: in order of increasing projected annual dividend growth:

    46. Ecolab Inc. (NYSE:ECL)

    Industry: Cleaning Products

    Market Cap: $33.3 Billion

    yield: 1%

    Years on Dividend Achievers List: 27 @10.85% annual growth rate.

    5 year dividend growth rate: 11%

    Technical Analysis Conclusion: Buy Now

    45. Hormel Foods Corporation (NYSE:HRL)

    Industry: Meat Products

    Market Cap: $12.49 Billion

    yield: 1.7%

    Years on Dividend Achievers List: 23 @11.01% annual growth rate.

    5 year dividend growth rate: 12.34%

    Technical Analysis Conclusion: Buy Now

    44. Royal Gold, Inc. (NASDAQ:RGLD)

    Industry: Gold Royalty Management

    Market Cap: $4.45 Billion

    yield: 1.2%

    Years on Dividend Achievers List: 11 @11.21% annual growth rate.

    5 year dividend growth rate: 20.11%

    Technical Analysis Conclusion: Buy Now

    43. W.W. Grainger, Inc. (NYSE:GWW)

    Industry: Industrial Equipment

    Market Cap: $17.33 Billion

    yield: 1.5%

    Years on Dividend Achievers List: 42 @11.57% annual growth rate.

    5 year dividend growth rate: 15.1%

    Technical Analysis Conclusion: Buy Now

    42. W.R. Berkley Corporation (NYSE:WRB)

    Industry: Property/Casualty Insurance

    Market Cap: $5.45 Billion

    yield: 1%

    Years on Dividend Achievers List: 11 @11.57% annual growth rate.

    5 year dividend growth rate: 10.77%

    Technical Analysis Conclusion: wait list

    41. Becton, Dickinson and Company (NYSE:BDX)

    Industry: Medical Supplies

    Market Cap: 22.24 Billion

    yield: 1.9%

    Years on Dividend Achievers List: 40 @11.84% annual growth rate.

    5 year dividend growth rate: 10.56%

    Technical Analysis Conclusion: buy now

    40. John Wiley & Sons Inc. (JW-A)

    Industry: Publishing

    Market Cap: 3.42 Billion

    yield: 1.8%

    Years on Dividend Achievers List: 19 yrs @11.92% annual growth rate.

    5 year dividend growth rate: 13.97%

    Technical Analysis Conclusion: wait list

    39. The Valspar Corporation (NYSE:VAL)

    Industry: specialty chemical

    Market Cap: 5.33 Billion

    yield: 1.5%

    Years on Dividend Achievers List: 32 years @12.09% annual growth rate.

    5 year dividend growth rate: 11.6%

    Technical Analysis Conclusion: buy now

    38. Albemarle Corporation (NYSE:ALB)

    Industry: specialty chemical

    Market Cap: 5.33 Billion

    yield: 1.5%

    Years on Dividend Achievers List: 18 years @12.13% annual growth rate.

    5 year dividend growth rate: 14.9%

    Technical Analysis Conclusion: wait list

    37. Helmerich & Payne, Inc. (NYSE:HP)

    Industry: Insurance

    Market Cap: 10.35 Billion

    yield:2.6%

    Years on Dividend Achievers List: 41 years @12.2% annual growth rate.

    5 year dividend growth rate: 65.7%

    Technical Analysis Conclusion: buy now

    36. Owens & Minor Inc. (NYSE:OMI)

    Industry: Medical Equipment

    Market Cap: 2.16 Billion

    yield:2.9%

    Years on Dividend Achievers List: 15 years @12.21% annual growth rate.

    5 year dividend growth rate: 12.5%

    Technical Analysis Conclusion: Wait List

    35. Target Corp. (NYSE:TGT)

    Industry: Retail

    Market Cap: 38.23 Billion

    yield:3.1%

    Years on Dividend Achievers List: 46 years @12.29% annual growth rate.

    5 year dividend growth rate: 25.2%

    Technical Analysis Conclusion: Wait List

    34. Family Dollar Stores Inc. (NYSE:FDO)

    Industry: Discount Stores

    Market Cap: 7.63 Billion

    yield:1.6%

    Years on Dividend Achievers List: 37 years @12.67% annual growth rate.

    5 year dividend growth rate: 10.6%

    Technical Analysis Conclusion: Buy Now

    33. Sigma-Aldrich Corporation (NASDAQ:SIAL)

    Industry: Specialty Chemicals

    Market Cap: 11.23 Billion

    yield:1%

    Years on Dividend Achievers List: 37 years @12.86% annual growth rate.

    5 year dividend growth rate: 10.6%

    Technical Analysis Conclusion: Buy Now

    32. Lincoln Electric Holdings Inc. (NASDAQ:LECO)

    Industry: Industrial small tools

    Market Cap: 6.1 Billion

    yield:1.2%

    Years on Dividend Achievers List: 17 years @12.92% annual growth rate.

    5 year dividend growth rate: 11.2%

    Technical Analysis Conclusion: Buy Now

    31. Archer Daniels Midland Company (NYSE:ADM)

    Industry: Agricultural Products

    Market Cap: 26.78 Billion

    yield:2.4 %

    Years on Dividend Achievers List: 37 years @13.38% annual growth rate.

    5 year dividend growth rate: 11.4%

    Technical Analysis Conclusion: Buy Now

    30. International Business Machines Corporation (NYSE:IBM)

    Industry: IT Services

    Market Cap: $192.94 Billion

    yield:2.1 %

    Years on Dividend Achievers List: 17 years @14.08% annual growth rate.

    5 year dividend growth rate: 13.7%

    Technical Analysis Conclusion: Wait List

    29. The TJX Companies, Inc. (NYSE:TJX)

    Industry: Discount Retail

    Market Cap: $42.81 Billion

    yield:1 %

    Years on Dividend Achievers List: 25 years @14.24% annual growth rate.

    5 year dividend growth rate: 21.4%

    Technical Analysis Conclusion: Wait List

    28. Church & Dwight Co. Inc. (NYSE:CHD)

    Industry: Consumer Cleaning Products

    Market Cap: $9.24 Billion

    yield:1.9 %

    Years on Dividend Achievers List: 16 years @14.47% annual growth rate.

    5 year dividend growth rate: 47.11%

    Technical Analysis Conclusion: Wait List

    27. Walgreens (WAG)

    Industry: Pharmacy

    Market Cap: $63.17 Billion

    yield:1.9 %

    Years on Dividend Achievers List: 38 years @14.48% annual growth rate.

    5 year dividend growth rate: 22.33%

    Technical Analysis Conclusion: buy now

    26. Raven Industries Inc. (NASDAQ:RAVN)

    Industry: diversified industrial machinery

    Market Cap: $1.37 Billion

    yield:1.3%

    Years on Dividend Achievers List: 27 years @15.11 % annual growth rate.

    5 year dividend growth rate:13.05%

    Technical Analysis Conclusion: Wait List

    25. Donaldson Company, Inc. (NYSE:DCI)

    Industry: Filtration systems

    Market Cap: $6.12 Billion

    yield:1.3%

    Years on Dividend Achievers List: 27 years @15.12 % annual growth rate.

    5 year dividend growth rate:19.48%

    Technical Analysis Conclusion: Wait List

    24. Nu Skin Enterprises Inc. (NYSE:NUS)

    Industry: Personal Products

    Market Cap: $4.35 Billion

    yield:1.7 %

    Years on Dividend Achievers List: 31 years @15.14 % annual growth rate.

    5 year dividend growth rate:22.22%

    Technical Analysis Conclusion: Buy Now

    23. The Andersons, Inc. (NASDAQ:ANDE)

    Industry: Farm Products

    Market Cap: $1.6 Billion

    yield: 0.8%

    Years on Dividend Achievers List: 16 years @15.18% annual growth rate.

    5 year dividend growth rate: 13.49%

    Technical Analysis Conclusion: Wait List

    22. Casey's General Stores, Inc. (NASDAQ:CASY)

    Industry: Grocery Stores

    Market Cap: $2.56 Billion

    yield: 1.1%

    Years on Dividend Achievers List: 15 years @15.35% annual growth rate.

    5 year dividend growth rate: 19.14%

    Technical Analysis Conclusion: Buy Now

    21. Lowe's Companies Inc. (NYSE:LOW)

    Industry: Home Improvement

    Market Cap: $48.33 Billion

    yield: 1.6%

    Years on Dividend Achievers List: 50 years @15.69% annual growth rate.

    5 year dividend growth rate: 17.61%

    Technical Analysis Conclusion: Buy Now

    20. AptarGroup, Inc. (NYSE:ATR)

    Industry: Packaging/Containers

    Market Cap: $4.17 Billion

    yield: 1.6%

    Years on Dividend Achievers List: 19 years @15.74% annual growth rate.

    5 year dividend growth rate: 10.76%

    Technical Analysis Conclusion: Buy Now

    19. Prosperity Bancshares Inc. (NYSE:PB)

    Industry: Regional Bank

    Market Cap: $4.03 Billion

    yield: 1.6%

    Years on Dividend Achievers List: 14 years @17.2% annual growth rate.

    5 year dividend growth rate: 12.37%

    Technical Analysis Conclusion: Buy Now

    18. HCC Insurance Holdings Inc. (NYSE:HCC)

    Industry: Property and Casualty Insurance

    Market Cap: $4.15 Billion

    yield: 2.1%

    Years on Dividend Achievers List: 16 years @17.79% annual growthrate.

    5 year dividend growth rate: 15.39%

    Technical Analysis Conclusion: Buy Now

    17. Jack Henry & Associates Inc. (NASDAQ:JKHY)

    Industry: Business Software and Services

    Market Cap: $4.82 Billion

    yield: 1.4%

    Years on Dividend Achievers List: 22 years @18.36% annual growth rate.

    5 year dividend growth rate: 23.36%

    Technical Analysis Conclusion: Buy Now

    16. Roper Industries Inc. (NYSE:ROP)

    Industry: Diversified Machinery

    Market Cap: $13.21 Billion

    yield: 0.6%

    Years on Dividend Achievers List: 20 years @18.5% annual growth rate.

    5 year dividend growth rate: 19.23%

    Technical Analysis Conclusion: Buy Now

    15. Tiffany & Co. (NYSE:TIF)

    Industry: Jewelry Stores

    Market Cap: $11.14 Billion

    yield: 1.6%

    Years on Dividend Achievers List: 25 years @18.81% annual growth rate.

    5 year dividend growth rate: 14.87%

    Technical Analysis Conclusion: buy now

    14. Monsanto Company (NYSE:MON)

    Industry: Agribusiness

    Market Cap: $58.4 Billion

    yield: 1.6%

    Years on Dividend Achievers List: 42 years @18.93% annual growth rate.

    5 year dividend growth rate: 12.37%

    Technical Analysis Conclusion: Buy Now

    13. CARBO Ceramics Inc. (NYSE:CRR)

    Industry: Oil And Gas Service Equipment

    Market Cap: $2.64 Billion

    yield: 1%

    Years on Dividend Achievers List: 12 years @19.41% annual growth rate.

    5 year dividend growth rate: 12.03%

    Technical Analysis Conclusion: Wait List

    12. Cass Information Systems, Inc. (NASDAQ:CASS)

    Industry: Business Services

    Market Cap: $0.543 Billion

    yield: 1.7%

    Years on Dividend Achievers List: 11 years @19.51% annual growth rate.

    5 year dividend growth rate: 11.13%

    Technical Analysis Conclusion: Wait List

    11. Franklin Resources Inc. (NYSE:BEN)

    Industry: Asset Management

    Market Cap: $33.4 Billion

    yield: .9%

    Years on Dividend Achievers List: 32 years @19.91% annual growth rate.

    5 year dividend growth rate: 11.13%

    Technical Analysis Conclusion: Buy Now

    10. McDonald's Corp. (NYSE:MCD)

    Industry: Restaurants

    Market Cap: $95.1 Billion

    yield: 3.4%

    Years on Dividend Achievers List: 37 years @21.04% annual growth rate.

    5 year dividend growth rate: 10.13%

    Technical Analysis Conclusion: Wait list

    9. Cardinal Health, Inc. (NYSE:CAH)

    Industry: Wholesale Drugs

    Market Cap: $23.05 Billion

    yield: 1.8%

    Years on Dividend Achievers List: 24 years @21.26% annual growth rate.

    5 year dividend growth rate: 16.7%

    Technical Analysis Conclusion: buy now

    8. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL)

    Industry: Restaurants

    Market Cap: $2.36 Billion

    yield: 3.1%

    Years on Dividend Achievers List: 27 years @21.8% annual grow rate.

    5 year dividend growth rate: 30.26%

    Technical Analysis Conclusion: Buy now

    7. Nike, Inc. (NYSE:NKE)

    Industry: Apparel

    Market Cap: $64.23 Billion

    yield: 1.3%

    Years on Dividend Achievers List: 26 years @22.14% annual growth rate.

    5 year dividend growth rate: 13.94%

    Technical Analysis Conclusion: Buy Now

    6. Ross Stores Inc. (NASDAQ:ROST)

    Industry: Apparel Stores

    Market Cap: $14.98 Billion

    yield:1%

    Years on Dividend Achievers List: 18 years @22.39% annual growth rate.

    5 year dividend growth rate: 29.05%

    Technical Analysis Conclusion: Buy Now

    5. FactSet Research Systems Inc. (NYSE:FDS)

    Industry: Information Delivery Services

    Market Cap: $4.44 Billion

    yield:1.4%

    Years on Dividend Achievers List: 13 years @22.9% annual growth rate.

    5 year dividend growth rate: 14.22%

    Technical Analysis Conclusion: Wait List

    4. Wal-Mart Stores Inc. (NYSE:WMT)

    Industry: Discount Variety Stores

    Market Cap: $240.97 Billion

    yield: 2.5%

    Years on Dividend Achievers List: 39 years @23.7 % annual growth rate.

    5 year dividend growth rate:14.58%

    Technical Analysis Conclusion: Buy Now

    3. Bank of the Ozarks, Inc. (NASDAQ:OZRK)

    Industry: Regional Bank

    Market Cap: $2.22 Billion

    yield: 1.5%

    Years on Dividend Achievers List: 14 years @24.87 % annual growth rate.

    5 year dividend growth rate: 27.62%

    Technical Analysis Conclusion:ozrk

    2. SEI Investments Co. (NASDAQ:SEIC)

    Industry: Asset Management

    Market Cap: $5.88 Billion

    yield:1.3 %

    Years on Dividend Achievers List: 17 years @ 25.54% annual growth rate.

    5 year dividend growth rate:22.42%

    Technical Analysis Conclusion: Wait List

    1. Stryker Corporation (NYSE:SYK)

    Industry: Medical Appliances

    Market Cap: $30.62 Billion

    yield: 1.5%

    Years on Dividend Achievers List: 18 years @ 27.29% annual growth rate.

    5 year dividend growth rate: 22.42%

    Technical Analysis Conclusion: syk

    For the purposes of the experimental portfolio, I will purchase $1000 in each stock. The timing of when to purchase will be based on basic technical analysis. If RSI, slow stochastics and MACD indicate the stock is undervalued and the momentum is turning positive, I will purchase that stock right away. If the technical indicators indicate likely short-term price declines, then I will place the stock on a watchlist and monitor it on a weekly basis, purchasing during the next short term minimum.

    Here are the experimental portfolios I will be running, with 2 and 3 explained in part 2.

    1. Fastest projected dividend growth, listed above.

    2. High Yield, High quality, meaning that I have pre-screened the candidates to exclude those that will face declining dividends in rising interest rate environments, (no mREITS) or natural expiration dates, (no trusts). While CEFS will be allowed, I will make sure to screen out those that do return of capital that is destructive to long term NAV.

    3. Combination of portfolios 1,2

    As of today here are the companies that technical analysis indicates should be purchased immediately:

    WMT, ROST, NKE, CBRL, BEN, MON

    And here are those that should be placed on a watch list:

    SYK, SEIC, OZRK, FDS, CAH, MCD, CASS, CRR, TIF, CASY, ANDE, DCI, RAVN, CHD, PX, WAG, TJX, IBM

    Monthly I'll include updates to how each portfolio is doing, as well as major news that may occur with each company. In addition, though it may take a long time I will research and present write ups of the companies in these separate portfolios. It may take some time to analyze these companies, but I am confident that it will make me a better investor. In addition, it will give, me a chance to research companies I would have never otherwise looked at and hopefully answer an important question of interest to all dividend investors. Is it more important to have higher immediate yield or higher dividend growth?

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Themes: quick-picks-lists Stocks: ECL, RGLD, HRL, TJX, WBA, RAVN, PX, CHD, ANDE, ATR, BEN, CAH, CASS, CASY, CBRL, CRR, DCI, FDS, HCC, JKHY, LOW, MCD, MON, NKE, NUS, OZRK, PB, ROP, ROST, SEIC, SYK, TIF, WMT
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Comments (1)
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  • astarr66
    , contributor
    Comments (235) | Send Message
     
    Nice article. I bought MCD, NUS, ROST last year for high DG amd lower payout ratio. Beware NUS business model is under investigation in China. Had 300% gain before the news last month destroyed 200% of it.

     

    Please expand your tecnical analysis!

     

    "As of today here are the companies that technical analysis indicates should be purchased immediately".

     

    Thanks.
    14 Feb 2014, 08:40 PM Reply Like
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