Dividend Growth 50: A Very Happy Anniversary

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Includes: AAPL, ADP, AFL, BAX, BDX, CAT, CL, CLX, COP, CVX, D, DE, EMR, GE, GIS, GPC, HCP, HSY, IBM, JNJ, KHC, KMB, KMI, KO, LMT, MCD, MKC, MMM, MO, MSFT, NEE, O, OHI, PEP, PG, PM, QCOM, SBUX, SHPG, SJM, SO, T, TGT, UTX, V, VDIGX, VIG, VOO, VZ, WBA, WEC, WFC, WMT, XOM
by: Mike Nadel

Summary

In Year 1, the DG50 produced outstanding income and also was no total-return slacker.

A few companies were laggards, but perfect portfolios are as rare as pink unicorns.

Starbucks, Kraft-Heinz and McDonald's were among the many DG50 components to shine.

Caterpillar (NYSE:CAT) crawled into a hole, Baxter (NYSE:BAX) spun out, Wal-Mart (NYSE:WMT) went on the clearance rack and Qualcomm (NASDAQ:QCOM) made me queasy. And don't even get me started on Kinder Morgan (NYSE:KMI), my least-favorite investment since the ring I bought Becky Schneider back in 6th grade. (Becky only broke my heart; KMI tried to break my portfolio, a much more serious offense!)

Thankfully, these last 12 months have brought more ups than downs for the Dividend Growth 50. Wednesday, Dec. 16 marked the one-year anniversary of the DG50 - the real-time, buy-and-hold portfolio I funded with more than $25,000 of my own money.

My article on the process - It's New! It's Nifty! It's The Dividend Growth 50! - remains far and away my most-read work for this site, drawing nearly 66,000 page views and more than 1,000 comments.

In the 52 weeks since it was published, the DG50's income grew nearly 8%, which is pretty sweet. And although total return is a secondary concern for many Dividend Growth Investing practitioners, that wasn't shabby, either.

Quick Recap On The DG50's Origin

Back in the fall of 2014, I asked 10 fellow Seeking Alpha contributors to choose 50 companies each. The panelists combined to select 163 companies, with the 50 leading vote-getters forming what I initially dubbed the New Nifty Fifty. (The original Nifty Fifty of the 1970s got a bad rap as a failure when, in fact, many who invested in its components became multi-millionaires.)

A couple of months later, I decided to fund the portfolio, investing about $500 in each company on Dec. 16, 2014. I renamed it the Dividend Growth 50, which I considered catchier, more accurate and less dated than New Nifty Fifty.

When one undertakes a project, one doesn't really know how it will turn out. One might hope it goes a certain way, and one might even suspect it will go a certain way, but one can't really know until the project has a chance to develop.

So far, it's been interesting and successful, but I caution everyone (including myself) to remember that we're only one year into it.

There wasn't even real previous-year income to compare it to, so I painstakingly calculated the year-long dividends (and reinvested dividends) that would have been paid, had the exact same number of shares of the exact same stocks been bought on Dec. 16, 2013.

It will be another year until we can compare the growth of actual "Divvy Dollars" received. And it might be a decade or more before we can make any real conclusions. Good thing I plan to be around for awhile!

Neither the 10 panelists nor I ever suggested any investor replicate this portfolio. The idea always has been to present companies for consideration and further research, to track dividend growth and, mostly, to have a real-money portfolio that can serve as a real-world learning laboratory.

Without any further ado, here is the first-year progress report for the Dividend Growth 50:

COMPANY

SHR

BUY

COST

CUR

SHR

VALUE

PCT

INC

(DCR)

DIV RCD YR END 12/16/14

DIV RCD

12/16/14-12/16/15

DG%

MR INC%

3M

(NYSE:MMM)

3

$483.81

3.081

$461.99

(4.51)

$10.86

$12.42

14.4

19.9

AFLAC

(NYSE:AFL)

8

$466.72

8.205

$506.24

8.47

$12.12

$12.76

5.3

5.1

Altria

(NYSE:MO)

10

$502.80

10.416

$614.02

22.12

$19.98

$21.59

8.1

8.7

Apple

(NASDAQ:AAPL)

5

$546.40

5.085

$566.16

3.62

$9.31

$10.21

9.7

10.6

AT&T

(NYSE:T)

15

$489.00

15.846

$545.10

11.47

$28.16

$28.79

2.2

2.2

Auto Data Processing

(NASDAQ:ADP)

6

$499.50

6.107

$526.42

5.39

$8.70#

$8.87#

2.0

8.2

Baxalta**

(BXLT)

NA

NA

7.015

$263.76

**

NA

$0.49#

NA

NA

Baxter**

7

$502.11

7.129

$269.69

6.24**

$10.79#

$11.39#

5.6

(64.4)

Becton, Dickinson

(NYSE:BDX)

4

$541.68

4.051

$631.51

14.22

$6.57#

$7.23#

10.0

10.0

Caterpillar

5

$453.00

5.188

$351.33

(22.44)

$13.13

$14.89

13.4

10.0

Chevron

(NYSE:CVX)

5

$516.15

5.239

$489.53

(5.16)

$21.33

$21.75

2.0

0

Clorox

(NYSE:CLX)

5

$499.65

5.134

$673.17

34.73

$14.68

$15.26

4.0

4.1

Coca-Cola

(NYSE:KO)

12

$491.76

12.395

$543.39

10.50

$14.81

$16.04

8.3

8.2

Colgate-Palmolive

(NYSE:CL)

7

$478.10

7.154

$488.83

2.24

$10.02

$10.58

5.6

5.6

ConocoPhillips (NYSE:COP)

8

$515.76

8.423

$415.67

(19.41)

$23.05

$23.94

3.9

1.4

Deere

(NYSE:DE)

6

$537.66

6.169

$482.35

(10.29)

$13.44

$14.55

8.3

0

Dominion Resources

(NYSE:D)

7

$506.66

7.200

$486.50

(3.98)

$12.71#

$13.72#

7.9

7.9

Emerson Electric

(NYSE:EMR)

8

$482.96

8.292

$382.26

(20.85)

$14.23

$15.27

7.4

1.1

Exxon Mobil

(NYSE:XOM)

6

$533.28

6.220

$492.31

(7.68)

$16.38

$17.51

6.9

5.8

General Electric

(NYSE:GE)

20

$501.00

20.703

$641.37

28.02

$17.82

$18.64

4.6

0

General Mills

(NYSE:GIS)

10

$520.00

10.309

$610.18

17.34

$16.29

$17.50

7.4

7.3

Genuine Parts

(NYSE:GPC)

5

$517.45

5.105

$444.84

(14.03)

$8.68#

$9.30#

7.1

7.0

HCP

(NYSE:HCP)

11

$494.23

11.646

$432.64

(12.46)

$24.48

$25.38

3.7

3.7

Hershey

(NYSE:HSY)

5

$494.30

5.122

$468.25

(5.27)

$10.29

$11.29

9.7

9.0

IBM

(NYSE:IBM)

3

$460.77

3.101

$431.93

(6.26)

$12.87

$15.18

17.9

18.2

J.M. Smucker

(NYSE:SJM)

5

$497.95

5.112

$634.24

27.37

$12.32

$13.22

7.3

4.7

Johnson & Johnson

(NYSE:JNJ)

5

$522.40

5.151

$542.14

3.78

$13.95

$14.91

6.9

7.1

Kimberly-Clark

(NYSE:KMB)

4

$455.08

4.099

$516.14

13.42

$10.16#

$10.65#

4.8

4.8

Kinder Morgan

13

$505.31

13.760

$219.33

(56.59)

$22.52

$25.55

13.5

(75.5)+

Kraft-Heinz

(NASDAQ:KHC)

8

$479.52

9.257

$675.85

40.94

$17.24^

$19.14^

11.0

4.6

Lockheed Martin (NYSE:LMT)

3

$559.77

3.069

$667.50

19.25

$12.06#

$13.60#

12.8

10.0

McCormick

(NYSE:MKC)

7

$512.26

7.141

$617.12

20.47

$10.44

$11.28

8.0

7.5

McDonald's

(NYSE:MCD)

5

$450.75

5.173

$609.58

35.24

$16.61

$17.44

5.0

4.7

Microsoft

(NASDAQ:MSFT)

11

$506.66

11.309

$634.77

25.29

$12.78

$14.34

12.2

16.1

NextEra Energy

(NYSE:NEE)

5

$511.80

5.159

$534.73

4.48

$14.67

$15.58

6.2

6.2

Omega Healthcare

(NYSE:OHI)

13

$497.90

13.795

$478.41

(3.91)

$26.86

$29.13

8.5

7.7+

PepsiCo

(NYSE:PEP)

5

$473.95

5.109

$516.41

8.96

$9.46#

$10.38#

8.9

7.3

Philip Morris

(NYSE:PM)

6

$496.08

6.302

$568.12

14.52

$23.32

$24.57

5.4

2.0

Procter & Gamble

(NYSE:PG)

6

$542.46

6.202

$502.29

(7.41)

$15.37

$15.99

4.0

3.0

Qualcomm

7

$497.77

7.154

$343.89

(30.91)

$8.37#

$9.72#

16.1

14.3

Realty Income

(NYSE:O)

11

$511.50

11.533

$590.83

15.51

$24.66

$25.54

3.6

4.1+

Southern Company

(NYSE:SO)

10

$482.20

10.501

$486.51

0.89

$21.21

$21.93

3.4

3.3

Starbucks

(NASDAQ:SBUX)

6=

$486.24

12.152

$733.37

50.82

$6.64

$8.20

23.5

25.0

Target

(NYSE:TGT)

7

$511.49

7.199

$531.28

3.87

$13.47

$15.27

13.4

7.7

United Technologies

(NYSE:UTX)

4

$458.24

4.099

$389.93

(14.91)

$9.51

$10.33

8.6

8.5

Verizon

(NYSE:VZ)

11

$510.29

11.521

$535.84

5.01

$23.93

$24.79

3.6

2.7

Visa (NYSE:V)

2=

$515.66

8.057

$643.43

24.78

$3.37

$4.00

18.7

16.7

Walgreens Boots

(NASDAQ:WBA)

7

$513.80

7.114

$602.62

17.29

$9.21

$9.76

6.0

6.7

Wal-Mart

6

$507.18

6.121

$369.09

(27.23)

$8.70#

$8.88#

2.1

2.1

Wells Fargo

(NYSE:WFC)

9

$483.03

9.244

$516.27

6.88

$12.28

$13.41

9.2

7.1

WEC Energy

(NYSE:WEC)

10

$505.90

11.328

$580.22

14.69

$15.80

$18.33

16.0

17.2+

Cash

$13.15

TOTAL

$25,029.94

$26,272.65

4.96%

$725.61

$780.49

7.6%

KEYS:

SHR BUY is number of shares bought on 12/16/14; COST is amount spent for each position on 12/16/14; CUR SHR is shares as of 12/16/15 with dividends reinvested; VALUE is value of the position with dividends reinvested at market close 12/16/15; PCT INC (DCR) is the percentage increase (or decrease) in value from position purchase on 12/16/14 to market close 12/16/15; DIV RCD YR END 12/16/14 represents the dividends that would have been paid from 12/16/13 to 12/16/14 had the same number of shares of each company been bought on 12/16/13 -- it is a model for tracking purposes; DIV RCD 12/16/14-12/16/15 are actual dividends received from portfolio initiation on 12/16/14 to market close 12/16/15; DG% is dividend growth percentage from the model year to the actual portfolio year; MR INC % is the most recent dividend increase, a statistic provided for more forward-looking reasons.

ALSO:

  • # next to a specific dividend indicates fewer than 4 dividend payments received during the year
  • ** indicates the BAX spin-off of BXLT; for purposes of calculating gain over the year, their 12/16/15 value was combined
  • ^ indicates that the dividends for Kraft-Heinz includes those earned when it was Kraft Foods Group
  • = indicates stock splits for SBUX (2-for-1) and V (4-for-1)
  • + in the last column (MR INC) next to KMI, OHI, O and WEC indicate there were multiple dividend raises (and in KMI's case, both raises and a cut) in the last year.

Notes & Observations

  • The DG50 "fiscal year" ended on a high note with two strong days. Interestingly, that mini-surge came as the Federal Reserve met amid speculation it would raise interest rates (Tuesday) and ultimately did push the rates a quarter-point higher (Wednesday). For years, there had been trepidation that a rate hike would send stock prices skidding, but the market instead seemed to applaud the end of uncertainty.
  • Eagle-eyed readers might have noticed the DG50 actually has 51 components. That's because of Baxter's spin-off of Baxalta and because portfolio rules require holding new companies. Is it a little weird that the DG50 includes 51 companies? No weirder than the Big Ten having 14 member institutions!
  • I did not include the $133.96 "special dividend" received for being a KHC shareholder at the time of the Kraft-Heinz merger. Brokerages referred to this as a "corporate action," and the funds could not be automatically reinvested. Most of this cash was used to buy an additional share of KHC and an additional share of WEC, which also experienced a merger. The small dividends from the WEC merger ($2.10) and the BAX spin-off ($3.26) were included in the table's dividend totals.
  • Starbucks wins the prize for both largest total return (a whopping 50.82%) and best dividend growth (23.5%). Now that's what I call Venti performance! SBUX was chosen by the panel despite it being a relatively new Dividend Challenger and despite it having low yield -- clear evidence that there are many ways to do DGI.
  • Others experiencing total returns of 20% or more: Kraft-Heinz (40.94%), McDonald's (35.24%), Clorox (34.73%), GE (28.02%), Smucker (27.37%), Microsoft (25.29%), Visa (24.78%), Altria (22.12%), McCormick (20.47%).
  • Other big dividend growers: Visa (18.7%), IBM (17.9%), Qualcomm (16.1%), WEC (16%), 3M (14.4%), Target (13.4%).
  • Going forward (which brings in the last column of the table), Kinder Morgan has slashed its dividend 75.5%. Additionally, the combined dividends of Baxter and Baxalta will amount to a hefty cut from Baxter's previous payout. GE, Chevron and Deere are frozen; only GE has formally announced it plans no dividend hikes for 2016. Throw in the smaller-than-usual recent hikes by Emerson Electric, Philip Morris, Procter & Gamble and ConocoPhillips, and it will be interesting to analyze the DG50's dividend growth a year from now.
  • The big total-return laggard was KMI, down an incredible 57%. In the wake of its troubles, there have been many articles suggesting KMI never should have been held by DG investors, and it's certainly difficult to refute that claim now. Others that experienced particularly hellish paper losses since the DG50 was funded: Qualcomm (30.91%), Wal-Mart (27.23%), Caterpillar (22.44%), Emerson Electric (20.85%), ConocoPhillips (19.41%). That the portfolio nonetheless experienced a respectable overall gain underscores the notion that investors need not be perfect to succeed.
  • There were only three dividend payments for a handful of companies because their ex-dividend date fell just before the DG50 began and/or their final 2015 payment had not been made before Dec. 16. Those are marked with a # in the table. (For comparison sake, each also had three raises the previous year.)
  • Omega Healthcare and AT&T earned the most dividends and came the closest to adding a full share via dripping throughout the year. Visa produced the least income, only $4.
  • Because the DG50 is held in an IRA, taxes are not an issue.

Benchmark Brigade

As a DGI practitioner, my primary goal is to build and maintain a growing, sustainable dividend stream. I do pay some attention to total return, however, and I know that many others focus on that.

So on the same day I funded the DG50, I bought Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), Vanguard S&P 500 Index ETF (NYSEARCA:VOO) and Vanguard Dividend Growth Fund (MUTF:VDIGX) to serve as benchmarks. Here is how they fared over the same time period:

ETF/ FUND

SHARES BOUGHT

COST 12/16/14

CURR SHARES

VALUE 12/16/15

PCT INC

DIV RCD

VIG

6.00

$477.18

6.139

$485.10

1.66

$10.90

VOO

3.00

$552.57

3.062

$583.83

5.66

$11.68

VDIGX

219.348

$5,005.53

237.164

5,400.22

7.89

$143.33

Vanguard lists yield for these as: VIG 2.26%, VOO 2.06% and VDIGX 1.94%. The DG50 is yielding 2.97%. For "yield on cost" fans, the VIG position is at 2.28%, VOO 2.11% and VDIGX 2.86%, compared to 3.12% for the DG50. So the Dividend Growth 50 is the income winner by any measure.

VDIGX, with dividends reinvested, had an impressive total return of nearly 8%. It should be noted that VDIGX experienced a "double benefit" in the timing of this project because it received a dividend just six days after I bought it (Dec. 22, 2014) and received its end-of-2015 payout Wednesday, the very last day of the DG50 fiscal year. It won't get this double benefit next time. Still, I'm glad I included this fund in the project, as it bears watching as a potential investment.

VOO, the S&P 500 ETF, had a small edge in total return, which isn't surprising. VIG? The DG50 thrashed it in both income and total return.

VIG, VOO and VDIGX charge ongoing annual fees. The stocks in the DG50 were bought commission-free because I took advantage of one of the many deals brokerages offer these days.

Conclusion

When I launched the DG50, I said that back-testing is often a useful part of research, but that I was really interested in what "forward-testing" would show us.

Well, one year in, it has shown that the DG50 is doing its job - and doing it quite well, thank you.

Will that still be the case next year, next decade and beyond? I think so, and I'm looking forward to discovering if that thesis proves true.

Disclosure: I am/we are long MMM, AFL, MO, AAPL, T, ADP, BXLT, BAX, BDX, CAT, CVX, CLX, KO, CL, COP, DE, D, OHI, PEP, PM, PG, QCOM, O, SO, SBUX, TGT, UTX, VZ, V, WBA, WMT, WFC, WEC, EMR, XOM, GE, GIS, GPC, HCP, HSY, IBM, SJM, JNJ, KMB, KMI, KHC, LMT, MKC, MCD, MSFT, NEE, VIG, VOO, VDIGX.

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.