Am I A Dividend Growth Investor? And My New Resource!

|
Includes: AAPL, BRK.A, BRK.B, CVX, DUK, IBM, INTC, JNJ, KO, MCD, PG, QCOM, SO, SU, T, VTR, WFC, WMT, XOM
by: Kent Candee

Summary

A look to see if my portfolio holdings are producing growing dividends.

Introduction of a new dividend rating system.

Comparing my dividend growers to the new dividend rating system and the Chowder rule number.

I consider myself a dividend growth investor after trying my unsuccessful hand at buying stocks and being a trader. I simply lost way too much money. The reasons for my losses are very simple: failure to understand valuation, investor psychology, and the need to have a plan. I really cannot point to any one thing that turned me toward investing in dividend stocks.

My recollection is that I had learned about certain stocks paying dividends and I knew bonds pay interest. My thought process was that I needed to somehow accumulate enough wealth to cover my basic expenses in my retirement years. It seemed logical to me that the interest I earned on this wealth should be sufficient to cover those expenses. I have never been much of a bond enthusiast, so I started researching dividend stock investing.

Somewhere in my research I stumbled across two websites, Dividend Growth Investor and Dividend Mantra. Dividend Growth Investor website is stilling going strong today and I am a frequent reader of his articles. You can find many valuable dividend stock lessons and analysis that he writes about. His goal is to acquire a dividend growth stock portfolio that generates sufficient dividend income to meet his crossover point.

The Dividend Mantra website is still active, but it is no longer operated by the originator, Jason Fieber. Jason currently writes for the Daily Trade Alert and has a new website, Mr. Free at 33 - Your Financial Independence Coach. I do not frequent his new website and occasionally will check out his weekly "Undervalued Dividend Growth Stock of the Week" article on Daily Trade Alert.

The key to being a dividend growth investor is having the dividends grow. I got to thinking about this after my last article. Rose Nose was kind enough to share with me a link to the Single Best Investment. I had not read the book and elected to start to read it. After reading Mr. Miller's simple formula, High quality + High current yield + High growth of yield = High total returns, I began to think about my portfolio. I realized that I did not really know if my dividends have been growing over the last several years. I reviewed my portfolio and inserted initial purchase dates and dividends for each stock. I then compared those initial dividends to the current dividends. The results are in the following table.

Table 1. Combined Portfolio

Rollover401k

Symbol

Company Name

Dividend

Current Dividend Yield

Weight

Portfolio Yield

Dividend at Purchase

(NYSE: AAPL)

Apple, Inc.

0.57

1.73%

10.79%

0.19%

0.37857

(NYSE:BRK.B)

Berkshire Hathaway

0

0.00%

18.49%

0.00%

0

(NYSE:CVX)

Chevron Corporation

1.08

3.82%

4.46%

0.17%

1.07

(NASDAQ:INTC)

Intel Corporation

0.26

2.94%

4.17%

0.12%

0.225

(NYSE:JNJ)

Johnson & Johnson, Inc.

0.8

2.78%

6.91%

0.19%

0.57

(NYSE:KO)

The Coca-Cola Company

0.35

3.45%

4.84%

0.17%

0.255

(NYSE:MCD)

McDonald's

0.94

2.99%

11.34%

0.34%

0.61

(NYSE:PG)

Procter & Gamble

0.6695

3.04%

5.27%

0.16%

0.525

(NASDAQ:QCOM)

Qualcomm

0.53

3.93%

3.10%

0.12%

0.25

(NYSE:SU)

Suncor Energy

0.2142

2.70%

1.79%

0.05%

0.224

(NYSE:T)

AT&T

0.49

4.74%

5.16%

0.24%

0.43

(NYSE:VTR)

Ventas

0.775

5.02%

3.27%

0.16%

0.73

(NYSE:WFC)

Wells Fargo Corporation

0.38

2.67%

1.41%

0.04%

0.375

(NYSE:WMT)

Wal-mart

0.5

2.94%

1.53%

0.05%

0.48

(NYSE:XOM)

Exxon Mobil

0.75

3.64%

4.84%

0.18%

0.57

SpouseRothIRA

(NYSE:DUK)

Duke Energy

0.855

4.38%

1.14%

0.05%

0.8254

(NYSE:IBM)

International Business Machines

1.4

3.13%

2.01%

0.06%

1.3

(NYSE:SO)

Southern Company

0.56

4.57%

1.55%

0.07%

0.5425

T

AT&T

0.49

4.74%

1.77%

0.08%

0.48

WFC

Wells Fargo Corporation

0.38

2.67%

1.35%

0.04%

0.38

Dividend Yield

2.48%

Looking through the table there are some purchases (XOM, QCOM, MCD, T, KO, JNJ, AAPL) that have been performing well. The one loser is Suncor Energy. Somewhat ironic as this pick is one I did share with Warren Buffet, but sometime during 2016 Quarter 3, Warren sold out of his position. Obviously, I need to do the same.

Overall I believe that I am safe with calling myself a dividend growth investor. I need to clean house a little, but that is not uncommon with managing your portfolio. I still want to try and raise the portfolio dividend yield to 4% by my retirement years, anywhere from 6 to 16 years, depending on investments, medical insurance, health status, social security, and other factors. I realize that my portfolio yield is brought down with having 18.49% in Berkshire Hathaway. I have no plans to sell this stock as it has been the best performer with regard to price appreciation. I got lucky and was able to purchase this stock at a 1.2 price to book value ratio.

A New Resource: DIVCONTM

My first introduction to DIVCONTM was after I read Reuben Gregg Brewer's article, "Reality Shares' DIVS ETF: A Really Complex Dividend Tracker." The article intrigued my interest. I decided to visit Reality Shares website.

As I reviewed their website, I came across their DIVCON ETFs based on their DIVCONTM methodology. On their funds website, under the Research & Insights page, they have the S&P 500 Dividend Payers. The 5-year Dividend Growth column is a quick reference to those stocks which have increased their dividends over the last 5 years. My interest is in those stocks that have a 5-year growth rate of at least 7.2% a year or 41.6% cumulative growth. Much to my surprise, there were 270 companies with a 5-year cumulative growth of greater than 41.6%. (Table data was last updated December 2016 and is updated quarterly.)

In my previous article, I took a look at ETN as a possible industrial stock to buy. As noted above, ETN has a 5-year dividend growth rate of 67.65% or 10.9% compounded annual growth rate (OTCPK:CAGR).

In addition to the S&P 500 Dividend Payers, there was also the Dividend Market Data page showing the dividend data for the S&P 500 Dividends, NASDAQ 100 Dividends, and Dow 30 Dividends. These interactive graphics indicate the dividends paid last 12 months, dividends beginning of the year, and the percent change year-to-date.

DIVCONTM Methodology

I noted Reality Shares reference to their DIVCONTM methodology, but I did not find anything on their website discussing this intriguing approach. I decided to do the inevitable internet search, using, of course, Google.

DIVCON - Reality Shares Advisors was the first website listed. Reality Shares Advisors provides an introduction to DIVCONTM stating it is a dividend health rating system. It is designed to assess whether or not a company will increase or decrease its' dividend over the next 12 months. It continues with liking their 5 tier rating system to that of the US Armed Forces DEFCON system. A rather unique comparison I thought given my military background. They even have a white paper that readers can download to review the factors that are used to determine the ratings. It is in the white paper that they explain DIVCON stands for 'dividend condition'. They also illustrate the 5 tier rating and scoring (based on 100 points) system and the information is included in Table 2.

Table 2. DIVCON Rating and Scoring

DIVCON Tier

Rating

Score Range

DIVCON 5

Very healthy

64-100

DIVCON 4

Healthy

55-64

DIVCON 3

Neutral

46-55

DIVCON 2

Risky

32-46

DIVCON 1

Very Risky

0-32

Source: Reality Shares DIVCON White paper

Reality Shares Advisors has applied the DIVCON rating system to 1200 of the largest U.S. dividend paying corporations. My first reaction to the rating system was any stock purchases should have a DIVCON rating of at least 4. Within the white paper they indicate their rating system was backtested between the years 2001 to 2014. I looked at the backtesting and decided to calculate the results for stocks rated either DIVCON 4 or 5. There were 1,696 stocks and 91.3% increased their dividends within the next 12 months, 1.8% actually decreased their dividends, and 6.8% kept their dividends the same. Based on these results, seems my first reaction would be valid.

This got my curiosity going and I decided to examine what the DIVCON rating would be for each of the stocks in the portfolio. Table 3 lists the stocks with their respective DIVCON rating.

Table 3. Combined Portfolio with DIVCON Rating

Rollover401k

Symbol

Dividend

Current Dividend Yield

Weight

Portfolio Yield

DIVCON 201612

Dividend at Purchase

AAPL

0.57

1.73%

10.79%

0.19%

4

0.37857

BRK.B

0

0.00%

18.49%

0.00%

0

CVX

1.08

3.82%

4.46%

0.17%

2

1.07

INTC

0.26

2.94%

4.17%

0.12%

3

0.225

JNJ

0.8

2.78%

6.91%

0.19%

5

0.57

KO

0.35

3.45%

4.84%

0.17%

4

0.255

MCD

0.94

2.99%

11.34%

0.34%

4

0.61

PG

0.6695

3.04%

5.27%

0.16%

4

0.525

QCOM

0.53

3.93%

3.10%

0.12%

4

0.25

SU

0.2142

2.70%

1.79%

0.05%

0.224

T

0.49

4.74%

5.16%

0.24%

3

0.43

VTR

0.775

5.02%

3.27%

0.16%

1

0.73

WFC

0.38

2.67%

1.41%

0.04%

3

0.375

WMT

0.5

2.94%

1.53%

0.05%

4

0.48

XOM

0.75

3.64%

4.84%

0.18%

3

0.57

SpouseRothIRA

DUK

0.855

4.38%

1.14%

0.05%

3

0.8254

IBM

1.4

3.13%

2.01%

0.06%

4

1.3

SO

0.56

4.57%

1.55%

0.07%

3

0.5425

T

0.49

4.74%

1.77%

0.08%

3

0.48

WFC

0.38

2.67%

1.35%

0.04%

3

0.38

Dividend Yield

2.48%

Out of my 18 holdings, 2 stocks (BRK.B and SU) are not rated, one 1 rating, one 2 rating, six 3 rating, seven 4 rating, and one 5 rating. Earlier I indicated my high performers were XOM, QCOM, MCD, T, KO, JNJ, and AAPL. Looking at each of these there are two 3 ratings, four 4 ratings, and one 5 rating. It appears that Mr. Miller's formula would be best served by my suggestion of those stocks with a 4 or 5 DIVCON rating.

I also got to thinking about the Chowder rule number for stocks. I took the 5-year dividend growth rate from the S&P 500 Dividend Payers table referenced to earlier. I calculated the Chowder number for each of my stock holdings and listed them in Table 4.

Table 4. Combined Portfolio with DIVCON and Chowder Number

Rollover401k

Symbol

Current Dividend Yield

Sector

DIVCON 201612

Dividend at Purchase

5Y Dividend Growth Rate %

Chowder Number

AAPL

1.73%

Technology

4

0.37857

50.57

10

BRK.B

0.00%

Consumer, Non-cyclical

0

CVX

3.82%

Energy

2

1.07

33.33

10

INTC

2.94%

Technology

3

0.225

23.81

7

JNJ

2.78%

Healthcare

5

0.57

40.35

10

KO

3.45%

Consumer, Non-cyclical

4

0.255

48.94

12

MCD

2.99%

Services

4

0.61

34.29

9

PG

3.04%

Consumer, Non-cyclical

4

0.525

27.52

8

QCOM

3.93%

Technology

4

0.25

146.51

24

SU

2.70%

Energy

0.224

T

4.74%

Services

3

0.43

11.36

7

VTR

5.02%

Real Estate

1

0.73

34.78

11

WFC

2.67%

Financial

3

0.375

216.67

29

WMT

2.94%

Services

4

0.48

36.99

9

XOM

3.64%

Energy

3

0.57

59.57

13

SpouseRothIRA

DUK

4.38%

Utilities

3

0.8254

13.99

7

IBM

3.13%

Technology

4

1.3

86.67

16

SO

4.57%

Utilities

3

0.5425

18.52

8

T

4.74%

Services

3

0.48

11.36

7

WFC

2.67%

Financial

3

0.38

216.67

29

The following stocks WFC, SO, IBM, XOM, VTR, QCOM, and KO met the Chowder rule number. There are only 3 stocks, XOM, QCOM, and KO that were also in my previously identified top dividend growers. I find it interesting that VTR has a DIVCON rating of 1, but a Chowder number of 11. I classify (REITs) like utilities, therefore a score greater than 8 represents a possible buy.

Another exercise would be to use Simply Safe Dividends scoring system to compare with the DIVCON rating system. Unfortunately, I am not a subscriber and will have to leave that to either a subscriber or Brian Bollinger to undertake.

In reviewing the comments to Dividend Sleuth's article on VTR there were references made to knowing the percent income each of your holdings are contributing relative to percent weighting. This is something that I have not given much thought to in the past and should be a future endeavor.

I hope that Reality Shares Advisors keep publishing and updating their DIVCON rating system. I realize that not all dividend evaluation systems will be 100%, but each system will have characteristics that are noteworthy and may be able to provide some insight to the dividend growth investor.

I would like to hear from the SA community what they think about the DIVCON system as another dividend tool or resource, like that of the Chowder rule number, and Simply Safe Dividends safety score.

Feel free to comment and I will do my best to respond, but responses will likely be in the late evenings.

Disclosure: I am/we are long AAPL, BRK.B, CVX, INTC, JNJ, KO, MCD, PG, QCOM, SU, T, VTR, WFC, WMT, XOM, DUK, IBM, SO.

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.