Norman Tweed's  Instablog

Norman Tweed
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Retiree interested in stocks and financial instruments, especially dividend producing stocks. In the 20th century, I was an electrical engineer with Dominion Resources. I use a dividend growth investment style. Quick rules of thumb for complex questions, like fair value p/e using the Gordon... More
  • Retirement Portfolio for Do it Yourselfers 8 comments
    Sep 5, 2011 12:54 PM

    When I was young (43) my wife said to me “I want my dream house”. I told her I didn't have the money and she said build it yourself. We made a deal. The two of us would build it together. It took 4 years, but after she learned to lay brick and block, do flooring and tile and get permits, the result looked the way she had always dreamed it would.

     

    The same can be done for your retirement. When I started work (1967) my company had no 401k plan. However, we had a thrift plan that matched up to 3% of the employee's contribution to purchase company stock. This evolved over time into a 401k plan, in which you could invest in several different index funds held by BNY/Mellon Bank, or you could invest a portion in company stock. I wished that I could invest in other individual stocks, back then and finally was able to when I retired in 2000 and rolled the 401k plan over into an IRA.

     

    Recently, a friend who is still working sent me a list of dividend growth stocks which has had a good income growth since 2006. He asked me to present the results and here they are.

     

    The portfolio consists of 10 dividend growth stocks: Abbott Labs (NYSE:ABT), Colgate (NYSE:CL), Johnson & Johnson (NYSE:JNJ), Coca Cola (NYSE:KO), Procter & Gamble (NYSE:PG), AT&T (NYSE:T), Exxon Mobile (NYSE:XOM), Kimberly Clark (NYSE:KMB), McDonald's (NYSE:MCD), and Wall-Mart Stores (NYSE:WMT). An initial investment (01/04/2006) of $100,000 was divided equally into 10 positions and the dividends were not re-invested. These are all Dividend Champions with 25 or more years of dividend increases. The results are as of 12/31/2010. Although this portfolio grew over the 5-yr period through price appreciation, the point of interest is the income and income growth over the period. Dividends and Income growth are presented below:


    2006 2007 2008 2009 2010
    Total Div
    ABT $290.33 $320.63 $329.46 $393.84 $434.23
    $1,768.49
    CL $224.98 $251.98 $280.78 $309.58 $365.37
    $1,432.69
    JNJ $232.50 $258.87 $286.83 $308.40 $337.17
    $1,423.77
    KO $303.78 $333.18 $372.38 $401.78 $431.18
    $1,842.30
    PG $205.47 $230.94 $263.20 $292.07 $320.16
    $1,311.83
    T $534.35 $570.51 $642.83 $658.90 $674.97
    $3,081.56
    XOM $218.54 $233.91 $264.64 $283.42 $297.08
    $1,297.59
    KMB $321.88 $348.70 $380.55 $399.00 $432.52
    $1,882.65
    MCD $295.68 $443.52 $480.48 $606.15 $668.24
    $2,494.09
    WMT $140.87 $178.65 $201.32 $227.76 $254.75
    $1,003.34








    Income $2,768.39 $3,170.89 $3,502.48 $3,880.90 $4,215.67   $17,538.33

     

     

    The power of this income growth can better be seen graphically:

     

     

     

     

     

    The key to this growth is compounding. The dividend growth rate multiplies the income by a factor of 1.52 in just 4 years. The next question is “How well was the original capital preserved?” Stock Charts for the 10 companies are presented below:

     

     

    It can be seen that all companies held up well, even during the Great Recession. It is especially fortunate that MCD, KO, and CL were included to create price appreciation. However, preservation of capital is all that was required. The income that was thrown off by this portfolio was what the retiree would live on.

     

    If one was looking for more income, while still in the accumulation phase of life, the dividends could be reinvested and additional investments could be made to increase the income stream. The stocks selected are not high dividend paying stocks. If a do-it-yourselfer can find better stocks, the income stream can be even better.

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Comments (8)
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  • Efsinvestment
    , contributor
    Comments (1595) | Send Message
     
    Tweedn. Why did you submit this nice piece as a full article? Instablogs does not have the same audience potential as full articles.
    5 Sep 2011, 01:00 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7483) | Send Message
     
    Author’s reply » Osman--I will submit this as a full article, after my friend looks it over and agrees with it. I have had quite a time getting my articles approved by the editors at SA. They say they are too technical and have too much information for the average investor.
    5 Sep 2011, 01:18 PM Reply Like
  • Steve in TN
    , contributor
    Comments (722) | Send Message
     
    Thanks for the article, Norman.
    I wish I had read an description of D-G investing like this many years ago.
    5 Sep 2011, 03:14 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7483) | Send Message
     
    Author’s reply » Steve in TN--Thanks for your kind words. I think the Internet and sites, like Seeking Alpha have made a world of difference in financial education, especially stock picking. When I was working, you had to go to the library and read old books on investing. Now you can Google anything you want, without going anywhere.
    5 Sep 2011, 04:00 PM Reply Like
  • OntheRock
    , contributor
    Comments (274) | Send Message
     
    Norm,

     

    I really like this article because it illustrates that, with some work and research, even a novice investor can make this strategy work in retirement. The companies that you use as examples are well known, easily understood and accessible for research. My husband and I are two years into retirement, and I have been gradually but steadily growing our DG portfolio. Better late than never!
    5 Sep 2011, 04:18 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7483) | Send Message
     
    Author’s reply » OntheRock--Thank you for your kind words! I believe it is important to spread the word to novice investors, especially retirees.
    5 Sep 2011, 04:30 PM Reply Like
  • David Fish
    , contributor
    Comments (9293) | Send Message
     
    Norm,
    This is an excellent piece with plenty of relevant information, but without being "too technical" at all, IMHO. The only thing you could add would be the ending value of the stocks...which would hopefully satisify the "total return" adherents to some extent.
    5 Sep 2011, 05:17 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7483) | Send Message
     
    Author’s reply » David Fish--I have submitted it as an article. If it is rejected, I will consider adding the ending value for the total return adherents. Thanks for the advice.
    6 Sep 2011, 04:55 AM Reply Like
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