When it comes to dividends, investors either immediately grasp the concept or dismiss it altogether. After all dividend payments are more stable than price returns. In addition to that, dividends have accounted for 40% of average annual total returns since the 1920s. Reinvested dividends on the other hand have accounted for over 90% of total stock market returns since 1871. As a result, it is no surprise that income investing is gaining support at a time when stock markets have been mostly flat for over a decade.
Back in 2009 several stock bloggers and I chose four stock picks each in a friendly stock contest. The companies I selected have low earnings volatility and as a result have stable dividend payments. In addition to that, the four companies were representative of four sectors of the economy – real estate, tobacco, utilities and energy. The companies include Realty Income (O), Con Edison (ED), Philip Morris International (PM) and Kinder Morgan Energy Partners (KMP).
Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets in North America. This dividend achiever has raised distributions to unit holders for fourteen consecutive years. The last distribution increase occurred in 2010, when this master limited partnership increased quarterly distributions from $1.05 to $1.07/unit. Yield 6.50%. (analysis)
Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This dividend achiever has raised distributions for sixteen consecutive years. Since the end of 2009, Realty Income has raised distributions from 0.1426875/share to 0.1433125/share. Yield 5.50%. (analysis)
Consolidated Edison, Inc., (ED) through its subsidiaries, provides electric, gas, and steam utility services in the United States. This dividend aristocrat has raised distributions for 36 consecutive years. Earlier this year the company raised distributions from 59 cents/share to 59.5 cents/share. Yield 5.40%. (analysis)
Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. The company has increased dividends twice since the spin-off from Altria (MO) in 2008. The last dividend increase was announced in September 2009. Yield 5.00%. (analysis)
The above mentioned stocks are good additions for current income. They should only be a part however of a diversified income portfolio, whose goal would be to produce income until the dividend growth component of the portfolio kicks in and starts generating enough cash flow. I would expect slow distribution growth from these stocks over the next few years.
Overall, this portfolio has achieved a 6.39% total return so far in 2010. I outperforming the stock selections of the other market newsletters for a second quarter in a row. (see results below)
Dividend Growth Investor: 6.39%
My Traders Journal: -11.90%
Where does all my money go: -14.16%
Zach Stocks: -17.24%
Intelligent Speculator: -19.06%
Four Pillars: -20.11%
The Financial blogger: -22.65%
Million Dollar Journey: -23.65%
The lesson to learn is that "boring" dividend stocks are less volatile in comparison to the overall market. The regular dividends paid also make shareholders hold on to their shares through thick and thin, without panicking. As long as dividends are being paid, income investors realize a positive return even in a flat or down market.
Full Disclosure: Long all stocks mentioned above
- Top Dividend Stocks for 2010, 1Q update
- 2010’s Top Dividend Plays
- Best High Yield Dividend Stocks for 2009
- Five Consumer Stocks for 2010
The stock market is finally having the correction everyone has been waiting for since 2012. In the past month, the S&P 500 is down by 7...
I am often asked the following question in some variation: If I were starting a dividend portfolio today, and had a lump sum to put to work ...
The price of oil has declined a lot since the summer of 2014. The West Texas Intermediate (WTI) in Cushing, Oklahoma has declined from a hig...
It is not a secret that stock prices have been rising for 6 - 7 years in a row now. This makes it easy to hold on to stocks, and believe tha...
As someone who has been investing in, and writing about dividend paying companies for over seven years , I have accumulated a lot of observa...
As many of you know, I only invest my money in companies which pay dividends. I have made a lot of money that way , and I use dividends as a...
As an investor my goal is to attain financial independence using my dividend growth strategy. As a dividend investor, my goal is to generat...
I have been focusing on dividend growth investing for several years now. As such, I try to think about why it works, and also think about s...
Last week, anywhere I checked on the internet, everyone was focused on stock market volatility. The fear is that we might be entering a new ...
There are many risks to investing . One of the major risks that could ruin a portfolio’s chances of generating adequate dividends are p...