Tuesday, June 27, 2017

Investing in the Dividend Aristocrats from 2007

Last week we saw how a $1 million investment in the original Dividend Champions did over the past nine years. Today, we are going to discuss how a similar passive investment in the Dividend Aristocrats at the beginning of 2008 would have done.

Introduction

S&P 500® Dividend Aristocrats® measure the performance S&P 500 companies that have increased dividends every year for the last 25 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company.

I first became fascinated with the list of Dividend Aristocrats in 2007/2008, just as I was beginning my dividend investing journey. This is what I wrote in an article from February 2008:

“One of my favorite stock lists is the S&P’s Dividend Aristocrats and the S&P High-Yield dividend aristocrats. These lists contain companies which have consistently increased their dividends over the past 25 years, which is a big achievement. These companies have gone through several up and down economic cycles and shown superiority of rewarding their shareholders with increasing payments through dividend growth.”

It made sense that solid blue chip companies, which have managed to grow dividends for 25 years in a row, are worthy of consideration. The requirement to grow dividends for a quarter of a century, or longer, weeds out a lot of the speculative companies out there. This requirement results in a list of quality companies with stable business models, which have withstood the test of time. It didn’t hurt that these companies had done phenomenally for their investors, while showering them with more dividends every year. Getting a rising dividend check, while also generating strong total returns in the process, is one example where you can have your cake and eat it too.

Thursday, June 22, 2017

Investing in the Dividend Champions from 2007

Imagine if you had $1 million dollars at the end of 2007. You decide to invest this money in the list of the original dividend champions companies. How would you have fared if you had invested that money in the dividend champions  almost a decade ago?

I have thought about the answers to this question many times. A few weeks ago I decided to start doing the work to answer it for myself. I always enjoy doing the hard work myself in order to form my opinions.

I used the information from David Fish and Robert Allan Schwarz in my data gathering phase. I wanted to determine how a passive investor in the original dividend champions from late 2007 to early 2008 would have done.

I was also inspired to do this research after observing those who always try to scare people away from dividend investing. The usual scare tactic involves mentioning one instance of a dividend cut, from the worst time for dividends during the 2007 – 2009 financial crisis, in order to trigger feelings of irrational fear. This low probability event is used to scare people away from dividend investing. Somehow, these doom and gloomers tend to focus on a once in a lifetime level of dividend cuts which has happened only during major financial collapses in 1929 – 1932 and 2007 – 2009. Otherwise, they do tend to ignore the 95% of the time when dividends are either up or flat for the year in aggregate.

I decided to accept the challenge, and offer proof that dividend growth investing works wonderfully even during a period that was extremely challenging for almost any strategy.

I decided to test how an investor in the original dividend champions from late 2007/early 2008 would have done through the end of 2016. The beginning period is right at the start of the Global Financial Meltdown, which supposedly decimated all dividend portfolios. Using data, and logic, I am going to refute the irrational fears against dividend growth investing.

Tuesday, June 20, 2017

Where are the Original Dividend Champions today?

The list of dividend champions was created by David Fish in 2007. It lists companies which have managed to boost dividends for 25 years in a row. David painstakingly maintains and updates the list every month on dripinvesting.org. In latter years, he has also added a list of dividend contenders and challengers ( companies raising dividends for more than 10 and more than 5 years respectively)
I first stumbled upon the list of dividend champions in early 2008, when I was starting my site from scratch. I have utilized the file in my research and investing, and have used it to gain insights into my investing.

In my research, I have also leveraged the historic compilation of the Dividend Champions, on the site of Robert Allan Schwartz. This collection of files has been instrumental in compiling the research on the original dividend champions.

There were 138 dividend champions in January 2008.

By the end of 2016, 78 of those original dividend champions are still on the list.

Monday, June 19, 2017

Eight Dividend Companies Increasing Dividend Payouts and Returns to Investors

As part of my monitoring process, I review the list of dividend increases every single week. I usually focus on companies that have raised dividends for at least a decade, in order to narrow down the list of companies to review. In order to be successful at dividend growth investing, you need to identify companies that can grow earnings, dividends and intrinsic values over time, which you can also purchase at an attractive valuation. I write these reviews in order to educate dividend investors about the quick way I use to look at companies before deciding whether to pursue further research or to discard them for the time being.

The companies that raised dividends last week, include:

Realty Income Corporation (O) is a publicly traded real estate investment trust. It invests in the real estate markets of the United States. The firm makes investments in commercial real estate. The REIT raised its monthly dividend to 21.15 cents/share. Realty Income is a dividend achiever, which has rewarded shareholders with rising dividends for 23 years in a row.

Friday, June 16, 2017

This is why you shouldn't overpay for stocks folks

You have probably read the news that Amazon is going to acquire Whole Foods Market (WFM) in cash for $42/share. This will increase competitive pressures in the grocery business, which has sent shares in companies like Target (TGT) and Wal-Mart (WMT) lower. Even retailers such as Ross Stores (ROST) and TJX Companies (TJX) are taking a beating. This decline could provide an opportunity to acquire quality merchandise at lower prices.

However, the issue I am going to discuss briefly deals with valuation. If you look at the chart of Whole-Foods over the past five years, you can see that the share price routinely sold above $42/share.

Whole Foods earned $1.26/share in 2012, and roughly $1.50/share every year through 2016. Therefore, anyone paying more than $30/share was likely overpaying for the stock. The company is worth $42/share in a going private transaction. However, if the buyout hadn't materialized, a discount to that price would have been warranted.

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