After my post when to break your rules, some readers asked me whether it is reasonable to enter into a dividend investment, which has not raised dividends for more than 10 years in row.
The truth is that dividend investing should require intense scrutinizing of companies, in order to find the best stocks for ones portfolio. Otherwise, investors could end up getting whipsawed in and out of stocks, which would increase trading costs and would make them less likely to reach their goals. The reason behind requiring at least a decade of consistent dividend growth is to weed out all companies which are inconsistent in their dividend policies. Few companies which raise distributions for less than a decade end up on the dividend achievers list. In fact of the total universe of 10,000 US publicly traded stocks, less than 300 are included in the achievers list.
The best dividend stocks are typically characterized by having a strong durable competitive advantage, which allows them to grow earnings and increase dividends on an annual basis. A company which raised dividends for only a few years could have achieved that because it simply got lucky by being at the right place at the right economic cycle. Once the economic expansion or trend which boosted the company’s profitability ends, the company’s earnings would stop growing or worse could start declining. This is another major reason to avoid dividend growers with less than a decade of distribution raises.
That being said I do have several stocks on my watch list, which I would be happy to consider for inclusion in my dividend portfolio once the following characteristics are met:
1) Raising dividends for at least 10 consecutive years
2) Trading at no more than 20 times earnings
3) Having an adequately covered dividend payout ratio (or for REITs and MLPs a distribution payout ratio which is consistent with the ratio of the past few years)
4) Yielding at least 3%
The companies which one day could become dividend achievers that I am watching include:
Kellogg Company (K), together with its subsidiaries, engages in the manufacture and marketing of ready-to-eat cereal and convenience foods. Kellogg Company is a former dividend aristocrat, which has fought back to regain its status of a dividend growth stock since 2005. The stock currently yields 3.10%
General Mills (GIS) engages in the manufacture and marketing of branded consumer foods worldwide. General Mills has increased its quarterly dividend in each of the past six consecutive years. The stock currently yields 2.80%.
Microsoft (MSFT) provides software and hardware products and solutions worldwide. Although the company has raised its annual dividend since 2003, over the past quarters the dividend has been flat.
Kraft Foods Inc. (KFT), together with its subsidiaries, manufactures and markets packaged food products and grocery products worldwide. The company has consistently raised dividends since it went public in 2001. In early September 2009 the company announced that it has would leave its current dividend payment of $0.29/share unchanged for the fifth consecutive quarter.
This post was featured in the Carnival of Personal Finance - Women in History Edition
Full Disclosure: None
- What are your dividend investing goals?
- Kraft Foods freezes dividends
- Master Limited Partnerships (MLPs) – an island of stability for dividend investors
- Using DRIPs for faster compounding of dividends
Wednesday, March 3, 2010
I try to assemble my dividend portfolio by mixing three distinct types of dividend growth stocks. The first group consists of higher yield...
Ben Graham is one of the most successful investors of all time. He is the father of value investing , and the mentor of super investor Warre...
After scooping up some shares in 3M (MMM) last week, I didn’t expect to make more purchases this month. After all, April is usually an expe...
My favorite saying is that " The best time to plant a tree is 20 years ago. The second best time is today ." This is why I am care...
I expect that sometime around 2018, my forward dividend income will exceed my monthly expenses . I find dividends to be a more stable and de...
There are many risks to investing . One of the major risks that could ruin a portfolio’s chances of generating adequate dividends are p...
My goal is generate a sufficient stream of dividends that exceeds my expenses. In order to achieve that, I try to identify companies that h...
As many of you know, I have several brokerage accounts. In an earlier article I discussed that I do this, in order to protect my capital ...
I have been overdosing on everything about Warren Buffett in the past two-three years. This has spilled over to learning more about Warren’...
In my investing, I try to put money to work every single month. I am extremely lucky that I have never had any material amount of debt, that...