A Dividend Growth Investor's 5-Step Preparation Plan For Earnings Season

Includes: INTC, KMI, KMP, SJM
by: Bob Wells

As a Dividend Growth Investor, I'm really beginning to look forward to earnings season. Most of you know I'm retired and putting the finishing touches on an income stream in support of our retirement. We're counting on our dividend income to support doing things like taking the kind of trips that weren't in our budget when we were raising our three girls. We are also setting up college investment accounts for each of our grandchildren. It's nice to have discretionary income. That's what our account does for us.

In preparation for earnings season, there are five important steps that I believe every Dividend Growth Investor should consider taking.

First, download the fresh list of stocks with a history of paying and growing dividends commonly referred to as the CCCs. These lists are available to all at no cost, courtesy of SA Contributor David Fish. They are available here:


Second, review your personal portfolio business plan, spelling out your objectives and the criteria you will use in determining whether a stock is fairly valued.

Three, modify your list of CCC stocks according to your objectives. For example: in preparing ours, we only actively tracks stocks yielding 2.7% or higher since we have a minimum requirement of 3% for purchase. We eliminate stocks with high betas or high payout ratios for their sector. We eliminate banks.

At last count, there were just under 125 stocks on my list, including the ones I already own.

We have a number of options this season. Option one: purchase more shares of the stocks that are already in our portfolio generating monthly income through the dividends they pay. Option two: buy from our watch list of dividend growth stocks described above.

Our portfolio contains 2% positions in 50 stocks. We have an additional 40 stocks that match our objectives on a watch list and ready to go. We use a portfolio set up on the web site Sig Fig to monitor the active movement of stocks in our portfolio and on our watch list.

Four, check Yahoo's Earning Season calendar or Seeking Alpha's Wall Street Breakfast for key stocks set to announce that day.

Five, do a year by year back test of each stock at Morningstar. Just enter the ticker, click on performance tab and click again on expanded view. You suddenly have your 10-year history. I like to look first at how the stock has performed during down markets like 2002 and 2008. Next, I won't consider a stock with more than four years of losses during the 10-year period.

Now I feel I'm ready, but first I'd like to share a story I've told before about what I noticed one earnings season last year. It was 9:30 am. The market had just opened and a great dividend growth stock, Smucker's (NYSE:SJM), was down, if I remember correctly, more than 4%. Wow, what had happened? It had only missed earnings by a cent or two. That was enough, however, to disappoint the Street. Shortly after lunch when I looked again, that loss had started to reverse. By the end of the day, SJM had made back a significant amount of its earlier loss. I watched this pattern repeat itself a number of times that season. I sure hope it does again this season and as you can see, I'll be ready when it does.

So here's my plan for each morning of earnings season. I'll check at 9:30 am to see what happens to the stocks I'm monitoring set to report that morning, or those that reported after the close the day before. I'll check on them again about an hour later. I'll probably pull the trigger on the ones we want between 10 am and 1 pm. I not trying to time the bottom, just hoping to buy a few of the stocks we want at a discount. Remember in our case, since our list is made up of CCC stocks, each has proven it can supply steady reliable retirement income from the growing dividends it produces.

Things get started tomorrow when Kinder Morgan (NYSE:KMP), (NYSE:KMI) reports. Thursday, we have Intel (NASDAQ:INTC) reporting. Things really get hot next week.

I hope other Dividend Growth Investors will share their favorite earnings season stories. It would be great to hear from other DG Investors with dry powder about what's on your shopping list this earnings season. May your earnings season experience prove successful.

Disclosure: I am long INTC, KMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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