The Portfolio For Do It Yourselfers: Thinking Outside The Box

Includes: CA, CSX, NSC, SPLS, SWY, WU
by: David Crosetti


In January, I wrote an article, updating The Portfolio For Do It Yourselfers. This is a portfolio that was created from an inheritance that my children received from my sister. The design of the portfolio was intended to be a Dividend Growth exercise and the investments made in the portfolio have to meet a certain set of metrics that we have, relative to the purchase of any company.

First, we are always looking for companies that are priced at a value to their intrinsic net worth. Even though we are DG investors, we are also "value investors."

Second, we like companies that have at least a 5 year history of paying dividends and increasing those same dividends on an annual basis.

Third, we like to purchase stocks that have a Dividend Growth Rate [DGR] that is greater than inflation, so we look for companies that have a 1, 3, and 5 year DGR in excess of 3%, but we tend to prefer companies with a DGR around 6%.

What You Should Know:

In November of last year, we decided to shop around for some value positions to add to our portfolio. The classic core stocks that we have invested in like Coca-Cola (NYSE:KO), Johnson and Johnson (NYSE:JNJ), Kimberly Clark (NYSE:KMB), McDonalds (NYSE:MCD), and Procter and Gamble (NYSE:PG), didn't seem to be priced at a particular value, so we did something that a lot of investors won't do. We decided to go deeper than our traditional search vehicles and look to companies that are often overlooked by DG investors.

What we found were some interesting prospects that we had never really considered before. One of the companies, CA Technology (NASDAQ:CA) was a company that we had never even heard of before. The other companies that piqued our interest were Safeway (NYSE:SWY), Staples (NASDAQ:SPLS), Western Union (NYSE:WU) and two additional companies that most investors are familiar with, CSX Corporation (NYSE:CSX) and Norfolk Southern (NYSE:NSC).

Now, while each of these companies pay a dividend, they are not all found on the Dividend Champion, Contenders, and Challenger lists that David Fish recaps each month (link)

While NSC is a Contender, CSX and SWY are Challengers. SPLS and WU are approaching qualifying as Challengers but are not there yet and CA, while recently boosting the dividend significantly is not a CCC stock.

What I Know:

Let's take a look at how these six stocks have performed since we've added them to our portfolio. Here is our recap of our initial purchase as outlined in our previous article (link).

As of the close of the markets on Friday, July 27th, the performance of our recent additions look like this:

All of our picks have increased in value from our beginning point. SWY is up 57%, SPLS is up 50%, WU is up 35%, as is CA, CSX has appreciated 26% and NSC 15%. The total group is up 32.6% since purchased.

While we have not held these companies very long, dividend increases look like this:

All of our picks have increased dividends with the exception of CA and WU. It is my expectation that WU will announce an increase in their dividend, sometime in October, and payable at the new rate with their December payment.

Summary and Conclusion:

I do not present these particular companies as a recommendation to you for your own purchase. I would suggest strongly that you investigate and stock purchase that you plan to make and that you use your own metrics of identification for your own investments.

I use these stocks to point out the "going to the next level" notion that I talked about earlier in the article. While I find most of my stock picks from the CCC stock lists, there are times when I want to find companies that can enhance my portfolio position. My feeling is to not limit my stock selection to only one set of companies, but to have an open mind as to finding opportunities that may exist outside of that particular resource.

Is there more upside to these particular companies? I believe there is. I also believe that these companies will continue to increase dividends as we move forward. That means that we will keep them in our portfolio until there is a functional change to the specific criteria that led us to purchase them in the first place.

Disclosure: I am long CA, CSX, SPLS, SWY, NSC, WU. 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.