Can You Simply Add To Your High Quality Dividend Growth Stocks When They're Down, Because They're Down?

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Includes: AAPL, ABT, AMZN, BLK, BRK.A, BRK.B, CL, CVS, JNJ, LOW, MDT, MMM, MSFT, NKE, PEP, QCOM, RPV, TXN, UTX, VIG, WBA, WMT
by: Dale Roberts
Summary

Value investing is often the practice of buying greater earnings compared to the current broad market, if growth prospects still look promising.

What if we throw out any judgement and simply add to our stocks when they're down and out of favour.

Can running into the burning barn offer greater returns? Or are we best simply adding to our holdings in equal fashion?

It's my guess the 'blind' value hunting will add value over time.

My readers will know that for our US holdings (for my wife's retirement accounts and my retirement accounts), I skimmed 15 of the largest cap Dividend Achievers (VIG) back in early 2015.

Here's Buying Dividend Growth Stocks Without Looking.

Now certainly the index did 'look' and it takes a more than an impressive company to make it into the Dividend Achievers Index that insists on at least 10 years of dividend growth; the companies must also pass the proprietary dividend health screens. In the end, I trusted professional portfolio construction methods compared to the guesswork of me or other Seeking Alpha contributors.

The 15 companies that I purchased are 3M (NYSE:MMM), PepsiCo (NASDAQ:PEP), CVS Health Corporation (NYSE:CVS), Walmart (NYSE:WMT), Johnson & Johnson (NYSE:JNJ), Qualcomm (NASDAQ:QCOM), United Technologies (NYSE:UTX), Lowe's (NYSE:LOW), Walgreens Boots Alliance (NASDAQ:WBA), Medtronic (NYSE:MDT), Nike (NYSE:NKE), Abbott Laboratories (NYSE:ABT), Colgate-Palmolive (NYSE:CL), Texas Instruments (NASDAQ:TXN) and Microsoft (NASDAQ:MSFT).

We also hold 3 picks by way of Apple (NASDAQ:AAPL), BlackRock (BLK) and Berkshire Hathaway (NYSE:BRK.A) (BRK.B).

And while I 'bought 'em without looking,' I also added to them without looking over the last few years. I only added to the losers and I let the winners run. Here's the returns history of the 15 Achievers as Portfolio 1, from January of 2015 until the end of March 2019. The chart is courtesy of portfoliovisualizer.com.

We see that the 15 Achievers has mostly been in a state of outperformance vs. the total index fund, but 2019 year to date has brought it back to a virtual tie. 15 companies track a cap weighted index in this case.

Here's the individual company returns for the period.

We see that the group is framed by the 2 losers in the retail pharma space, CVS and Walgreens. We have Qualcomm as a loser as well even though that company saw an incredible boost last week as Apple and Qualcomm settled their legal differences. Qualcomm recently moved from $50 to the $80 stock price range. If we factor in the April price moves, Qualcomm is in a positive position, slightly from early 2015.

Qualcomm is certainly one of the companies that I have added to over the last few years. That company is now in a winning position for me. In fact, Qualcomm is up over 31% for me over the period. I added when it was down and I reduced my average cost per share. But certainly that averaging down has not delivered any index outperformance for the period. It will take an extended run for Qualcomm to turn it into a market 'outperformer' even with my average cost reduction.

Other losers that got some love

Where this strategy worked the best is with the famous dividend growth stock Abbott Labs. Here's ABT as Portfolio 2 for the period.

Here's the favourite story of Buyandhold 2012 and how Grace Groner, a secretary at Abbott Labs, made a fortune from this one stock.

Nike also got some love in late 2016 and into 2017 when it went out of favour. Nike is Portfolio 2. That move also provided an index beat from points of reinvestment.

Walmart as Portfolio 2 also received some monies soon after initial purchase in 2015.

For reinvested monies in early 2016, that provided an index beat opportunity. Walmart certainly started to recover.

My biggest losers

CVS and Walgreens have been perpetual losers from 2015. And yes, I've thrown some monies at them a few times. Walgreens is Portfolio 2. CVS is Portfolio 3. Again, Portfolio 1 is the Total 15 Achievers.

There has been no recovery in either stock.

These two companies are certainly the talk of Value Town at times. And it's nice to see that analysts seem to like them. For CVS, there's an average price target of $79. The stock currently sits in the $53 range.

And CVS and Walgreens certainly show up in the value index funds such as the Invesco S&P 500 Pure Value Fund (RPV). You'll also find Walmart in the index.

They say that Walgreens had a tough quarter recently, but revenues continue to rise, and the overall financial picture looks quite healthy. I am not really dealing with a loser here. This is a company that makes a lot of money and returns a lot of value to shareholders. But hey, only time will give the final scorecard. From Morningstar:

I've turned more losers into winners

If we give Qualcomm the benefit of the doubt with its recent stock price and story turnaround, I have 4 cases where buying on the dip is working and 2 cases where it is not. And because I did start with a position of companies, each with a strong financial starting point, I am not currently throwing monies at companies that are in any financial distress. I've also had no dividend cuts. Only CVS is on hold as it absorbs its major acquisition.

I had no idea that Abbott would turn out to be a great company to buy on the dip and that any news that brought the stock down would disappear as a concern. In fact, I cannot even remember why it was down. I cannot remember why Nike was taken down. I believe Walmart was down because it was supposed to be crushed by Amazon (AMZN). Of course, I had no idea or could not even take an educated guess that Walmart would rev up its own online engine. That business unit is now growing faster than Amazon in percentage terms. Of course, I had no idea that Qualcomm would settle its lawsuit with Apple and that analysts would then quickly project very sizeable additional revenues and earnings moving forward.

I trusted my investment approach, not guesswork

I think this is a reasonable approach. But it's an approach that might backfire if you were adding to more companies that were more speculative. There's a big difference between investing and speculating. I wrote on that recently with respect to investing in the Cannabis sector where there is incredible potential but no earnings. Eventually, earnings have to show up. Adding monies continually to companies that do not make monies is a risky proposition.

Value investing often means going where others fear to tread. Trusting the management of your current businesses might be a reasonable approach if you start with enough companies and start with a position of financial strength. I would also suggest that you do not need to do any aggressive rebalancing, you might let your winners run and those incredible winners might take care of any situations where you're averaging down comes up short.

I'll also be back with a more 'numerical' evaluation of this strategy to-date.

What do you think? How do you allocate new monies and portfolio dividends?

Author's note: Thanks for reading. Please always know and invest within your risk tolerance level. Always know all tax implications and consequences. If you liked this article, please hit that "Like" button. Hit "Follow" to receive notices of future articles.

Disclosure: I am/we are long BNS, TD, RY, AAPL, BCE, TU, ENB, TRP, CVS, WBA, MSFT, MMM, CL, JNJ, QCOM, MDT, BRK.B, ABT, WMT. 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.