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Show Vs Grow Part 1: High Yield Vs Dividend Growth; An Experiment To Determine Which Approach Is Best

|Includes:ANDE, ATR, BEN, CAH, CASS, CASY, CBRL, CHD, CRR, DCI, Ecolab Inc. (ECL), FDS, HCC, HRL, JKHY, LOW, MCD, MON, NKE, NUS, OZRK, PB, PX, RAVN, RGLD, ROP, ROST, SEIC, SYK, TIF, TJX, WBA, 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.

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