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SDS (Seductive Dividend Stocks)
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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? /... More
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  • How To Build Dividend Growth Stock Portfolio? (11 March 2012) 4 comments
    Mar 12, 2012 1:17 AM

    The dividend growth (NYSE:DG) stock portfolio can be build by different principles. It seems interesting to compare performance of Div. Champions-like indexes (positive DGR for more than N years) from David Fish's data from 2007 or from early data as follows

    a) cap-weighted

    b) equal weighted

    c) dividend $$$ weighted [how much $$$ company distributed. It means investing more in companies that pay more $$$ i dividends in where ( dividends in $$$ )= (dividend per share) x (number of shares). ]

    with quarterly, semiannual and annual rebalances and dividends investments as

    i) DRIP-like in the same company

    ii) re-invest in accordance with weights a) b) c) above between different companies

    iii) keep for new div champs (how?).

    I invest almost equal amount of money (I got from dividends of other companies and I save from my salary) if different "new for me" (mostly DG) companies at right IMO price and consider it as invested capital. Then I almost don't care how market price "now my" company except two extremes - too high (above 2X -3 X in relatively short time) or too low (below 30%) - which force me to think (but not necessary to act).

    I'm not sure that this so-called quasi-equal weighted portfolio (again in terms of invested capital not in terms of current price) is the optimal way, so the bottom line questions are:

    a) is it optimal for individual investor to have equal- or dividend$$$- weighted portfolio? (I guess cap-weighted isn't optimal)

    b) Which option (cap- or dividend$$$-weighted) is better for ETF or mutual fund ( they cannot rely on equal-weighted - to much trading cost)?

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  • AgAuMoney
    , contributor
    Comments (4433) | Send Message
     
    a) I don't know about optimal. That seems like an impossible question. Personally I prefer roughly equal-weighting for most of my holdings, but there are a few positions that I allow to have 2x or more. By roughly, I mean I don't try to keep them exactly the same all the time! I watch and rebalance a couple or three positions when they seem too far out of whack -- when the transaction costs are dwarfed by the money moved, and/or when additional funds are also being deployed, and/or when an opportunity (like an undeserved selloff) presents.

     

    b) I think trying equal-weight is better for etf also. they would need to have rules, perhaps 10% high or low in a position would be the threshold? Dividend income related I think would be bad. Would you really want to have 4x as much MMM as T? Cap-weighted has never made much sense to me. Of course when trying to mimic a cap-weighted index, you do a cap-weighted fund. But for anything else I don't believe a cap-weighted model is useful. Maybe it would be necessary if the fund got so big that it would suffer liquidity issues when putting equal weight into the smaller companies?
    12 Mar 2012, 02:04 AM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3388) | Send Message
     
    Author’s reply » AgAuMoney
    Thank you for comment.
    My portfolio is ladder-like now - see http://bit.ly/x96XEi

     

    I don't act till position double (see http://bit.ly/wUM47n) or dividends omitted or cut to 1 cents for banks and utilities (see http://bit.ly/rrrjkX and http://bit.ly/ze92Oq)

     

    SDS
    12 Mar 2012, 08:39 AM Reply Like
  • AgAuMoney
    , contributor
    Comments (4433) | Send Message
     
    I usually rebalance a position when it has 20% to 40% advantage over what it should be.
    12 Mar 2012, 11:11 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3388) | Send Message
     
    Author’s reply » I do not. An academic study shows that rebalance of index fund like SP500 gives less than 1% (something like 0.6%) of performance. I think that it not worth broker fees at 40% level.
    13 Mar 2012, 01:17 AM Reply Like
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