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Turn-around CEO with successful strategy and executive-team-performance-improvement consulting business.
Nearing retirement and re-balancing my portfolio to dividend growth. Objective is to get 5% from portfolio every year - 3.5 points from dividends and 1.5 points from capital gains. Prefer higher DGR to higher yield, but need about 3.5% yield on portfolio.
"...research revealed some surprising results. Over any longer period, say five to ten years, the companies with the lowest dividend yields and the highest consistent dividend growth were the top performers." Divs should be from companies whose long term history is raising divs faster than inflation. Therefore, over time the 1.5 points
from stock sales should diminish to $ zero.
The overall portfolio should have 3 buckets of roughly equal proportion:
A.2 to 3% yielders with high DGR (>10% over at least 10 + years - stocks most often come from Consumer Cyclical, Tech, and Industrial sectors)
B.stocks which have a much higher than average dividend yield, say 4 to 6%,combined with dividend growth at 6 to 8%/yr over 5 + years. Portfolio B stocks are mostly filled with Utilities, Telecommunications, REITs, and Energy stocks.
C.very undervalued stocks which combine a higher than average dividend yield 3 to 4 % with at least a dgr no less than 6%. These stocks don't come from specific sectors because the reasons for undervaluation are company/industry specific headwinds or uncertainties.
% needed from sales equals about 1% of portfolio. Anticipating a 6 to 8%/yr long term increase in portfolio value, not counting divs, I expect portfolio value to increase and therefore provide a necessary cushion to achieving planning objectives.
Stock prices follow earnings in the long term. Therefore, stock prices should increase at roughly the DGR and vice versa. So, primary focus should be on estimated 5 and 1 year EPS growth, followed by 10, 5,3 and 1 year DGR histories.
Be mostly a buyer of high quality dividend stocks, with solid competitive advantages. My holding period is forever, as long as the dividend is at least maintained. But, I do a thorough review every quarter to see if some stocks can be replaced with higher quality without sacrificing yield. Quality in this case means higher: estimated 5 year EPS growth; 10, 5, 3 and 1 year DGR; better Graham; or lower payout ratio. This review causes a turnover of 1 to 2 stocks per quarter.
I Concentrate efforts on stocks which grow earnings and dividends and which provide outstanding total returns over time. For the most part, this means confining choices to the CCC list for security of dividends continuing and growing, and to limit downside swings in portfolio value. Diversify across sectors and geographic locations.
Don’t buy illiquid stocks. Did I say don't buy illiquid stocks.
1.Est 5 year growth > 8 to 10%
2.NY growth > 8 to 10%
3.5 yr DGR > 8 %
4.1 yr DGR > 8%
5.D/E < 1.0 (or upper quartile for sector)
6.Payout ratio < 70%
8.Min yield 2.5%
9.run Chowder rule looking for 12% sum of yield plus 5 year DGR
10.Check FAST Graphs for valuation.
Almost no stocks will pass through all these filters at once. So, I adjust as I go.
1.By y/e 2015, reduce stock positions to 40 from y/e 2012 number of 95.
2.Do an in-depth quarterly review for valuations
3.Sell if valuation is 20% over-valued per FastGraphs; but check history first and check current yield versus yield at purchase. If current yield in less than 2.5%, think about selling.
4.If stock underperforms its sector in total returns for 2 years (price plus dividend %), sell.
5.If it cuts, freezes or suspends its dividend, sell.
6.Consider tax implications of selling in non-IRA accounts.
Rules of Thumb
1.High yield (>3%), low payout stocks (< 60%) outperform over time.
2.High yield, high DGR (greater than 11% (which is avg for CCC)) stocks outperform over time.
3.Don’t buy MLP’s or REITS with yields less than 4%.
4.Don’t put MLP’s in IRA’s as distributions are often considered non-taxable returns of capital.
5.Assets paying interest (bonds and preferred stock) should be held in IRA’s since the interest is always taxed as ordinary interest anyway).
6.REIT divs are non-qualified and are usually treated as ordinary income, therefore shield the divs in an IRA.
7.High growth stocks where cap gains will be greatest are better off in a taxable account.
8.Utility divs are qualified and therefore tax is lower than ordinary income. They should be in a taxable account.
Comments on my objectives and strategies are welcome.
Dividend stock ideas & income, REITs, Retirement savings, Stocks - long
Dugan Performance Management, LLC
DUGAN PERFORMANCE MANAGEMENT’S PRACTICES A.TRAINING / COACHING We turn employees into effective employees; effective employees into effective managers and effective managers into effective leaders - with character and integrity, who drive substantial and lasting improvements in the organizational and
financial performance of their units. We do this by training, coaching, and mentoring in: 1.Skills (Competence Requirements): a.Leadership b.Management c.Planning (strategic): Strategic Thinking / Strategy Development / Plan Implementation d.Effectiveness: i.Personal Effectiveness - Using Stephen Covey’s The 7 Habits of Highly Effective People ii.Organizational Effectiveness - Using Jim Collins’s Good to Great e.Communication f.Being Opportunistic, adaptable to change and flexible 2.Best Practices (our 4P’s CO&A): a.People b.Planning (tactical) c.Processes d.Priority e.Culture f.Organization g.Accountability 3.Principles, Values, Behaviors and Personal Characteristics. B.CONSULTING SERVICES •Deep thinking and high-quality analysis followed by actionable advice on the complex strategic and operational issues important to executives and to which they may be too busy to devote the appropriate time. •Interim and supplemental management •Planning process development and implementation •Strategy development and implementation •Effectiveness auditing – assessing the true state of the effectiveness of current business processes and telling it like it is - in operations, sales and marketing, strategy and planning, HR •Board of Directors service and advice •M&A advice (20 successful deals done) C.EXECUTIVE ADVISORY SERVICES – Effective, comprehensive, objective and confidential advice based on highly successful president and CEO experience, on the challenges leaders face in making important, difficult, but necessary decisions: strategy change, cost reduction while maintaining growth and market effectiveness, culture change, organization design, process redesign. •Sounding Board / Thinking Partner •Confidant and Trusted Advisor •Truth-Teller “I don’t want any yes-men around me. I want everybody to tell me the truth, even if it costs them their job.” Samuel Goldwyn •Devil’s Advocate •Prodder – “A Paid Pain In The Butt” to prod executives to: o “Confront the brutal facts,” then o Do the right things, the right way, by 1st- things-1st priority and at world-class pace. All leaders and managers need objective prodding to achieve peak performance.
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