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Dividend Growth Investing: A Primer

|Includes: Colgate-Palmolive Co. (CL), CSX, JNJ, KMB, KO, MO, NSC, PG, SWY, T


There have been many articles written about Dividend Growth investing as a strategy. Lately it seems that there are a number of readers who do not fully understand some of the thinking behind Dividend Growth investing and part of that confusion might be because of the individual variances that investors use in managing their portfolios as DG investors.

My own philosophy of Dividend Growth investing criteria might be a little different than yours, but I think that there are fundamentals to the strategy that most of us would believe in. Here are some of my thoughts about how I go about DG investing.

What You Should Know:

I like to purchase stock in companies that:

  1. Are priced at a value to intrinsic worth.
  2. Have paid dividends for at least 5 years.
  3. Have increased those dividends annually.
  4. Have a Dividend Growth Rate that is larger than inflation.
  5. Have the earnings necessary to continue paying dividends.

Once a particular stock meets these criteria, if I buy it, then for the most part I am going to reinvest the dividends back into the stock when the dividend is paid. My broker is Schwab and they handle those transactions for me in a very efficient and no charge manner.

In the search for stocks that meet these metrics, I have purchased Coca Cola (NYSE:KO), Kimberly Clark (NYSE:KMB), Colgate Palmolive (NYSE:CL), Johnson and Johnson (NYSE:JNJ), Procter and Gamble (NYSE:PG), Altria (NYSE:MO), AT&T (NYSE:T). While I do not recommend specific stocks for you to purchase, these particular companies have, in the past, met the criteria that I employ. More recent acquisitions have been CSX Corporation (NYSE:CSX), Norfolk Southern (NYSE:NSC), and Safeway (NYSE:SWY).

I am not normally a seller of my stock positions unless the dividend is eliminated, is reduced, or remains the same. With that same principle, that means that I do not purchase stocks that have a great yield when they do not have a history of increasing their dividends. Those stocks are "stocks that pay a dividend," but they are not Dividend Growth Stocks.

A great reference point for Dividend Growth stocks is provided monthly by David Fish. He has a web-site at which has been a valuable resource for me and will be a valuable one for you if you are interested in DG investing.

What I Know:

I have been a DG investor since 1984. Now, I have to admit that I was not a pure DG investor until about 2000. I owned growth stocks, mutual funds, and even a few bonds. But, as I became more versed in the power of dividends, I transitioned to a more defined DG investor.

My goals with this strategy are simple ones:

  1. Develop a portfolio that will provide me with income for the rest of my life.
  2. Accumulate additional shares in my holdings through reinvested dividends.
  3. Accumulate additional shares with new money and new purchases of my holdings.
  4. Allow the DG strategy to work and the income steam to grow.
  5. End up with enough income to fund my retirement years without having to sell any stock in my portfolio.
  6. Use estate planning to leave my stock portfolio to my heirs for their own income source.

Summary and Conclusion:

I have written a number of articles in which I have shared my portfolios with you. My personal retirement portfolio is "The Common Man Portfolio." This is a portfolio that holds 35 different Dividend Growth stocks and is the basis of my retirement plan. "The Perfect Portfolio" is an investment basket that is in a taxable account. It is a more recent creation, having begun in 2009 and has 16 stock positions. "The Portfolio For Do It Yourselfers" is one that I started for my kids and it also is a DG portfolio that consists of 21 positions. Lastly, I have a portfolio that is a fun one. It's "The Dogs of the Dow" portfolio with 10 positions. Here are links to the most recent articles with those portfolios:

If you are not familiar with any of these portfolios, I would invite you to click on the "articles" section in the upper left hand side of this one, under the Callahan Auto Parts avatar. It will lead you to these portfolios and the articles written about them.

I hope that they will help you understand Dividend Growth investing, at least from one investor's perspective.

Disclosure: I am long KO, PG, JNJ, CL, KMB, T, MO, CSX, NSC, SWY. 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.