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 I have been able to save large portions of income, and allocate them into dividend growth stocks. Every time I purchase shares in a company, I view it as a seed I plant, which will one day bear fruit for me. I will use this fruit picked from the tree in my retirement to live off of. I do not believe cutting the tree down, in order to buy fruit with the proceeds, to be the most sustainable retirement plan. There are three types of “seeds” I plant in my dividend portfolio, which are based on three different types of dividend yield and dividend growth trade-offs.
I usually purchase shares in companies I like slowly, over time. If my target allocation is $10,000/company, and I buy $1000 at a time, it might take me several years of purchases in order to reach this size. Add in the fact that there are usually 15 – 20 companies I find attractive at a time, and you can see that building a position takes time. I buy slowly because I want to be able to deploy more funds in good quality companies if they sell-off. When I purchase shares at lower prices, this means I am able to buy more future dividend income for a lower price today. I would love to see lower prices on the companies I bought this week.
Speaking of which, I initiated positions in the following two companies after Memorial Day:
The TJX Companies, Inc. (TJX) operates as an off-price apparel and home fashions retailer in the United States and internationally. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX Europe. TJX Companies is a dividend achiever, which has raised dividends for 18 years in a row. The company has managed to deliver a 17.10% average increase in annual EPS over the past decade. The annual dividend payment has increased by 25.30% per year over the past decade, which is much higher than the growth in EPS. Despite the fact that I typically require a higher initial yield, I like the growth story and the growth prospects behind this company. This is why I initiated a small position in the stock at around 20 times forward earnings and a dividend yield of 1.30%. Check my analysis of TJX Companies for more details.
Ross Stores, Inc. (ROST), together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dds DISCOUNTS brand names in the United States. It primarily offers apparel, accessories, footwear, and home fashions. Ross Stores is a dividend achiever, which has raised dividends for 21 years in a row. The company has managed to deliver a 22.80% average increase in annual EPS over the past decade. The annual dividend payment has increased by 25% per year over the past decade, which is much higher than the growth in EPS. I believe that Ross Stores is slightly riskier than TJX, since it doesn’t’ have the scale and depth of connections. However, it has more opportunities for growth due to lower number of locations domestically and the fact that there are no international locations as of yet. In addition, it is a more likely takeover candidate than a TJX. I initiated a position at 19.50 times forward earnings and a yield of 1%. Check my analysis of Ross Stores for more details.
The companies I bought above are examples of the low yield and high dividend growth type of company I invest in. I am hopeful that those seeds will turn into mighty oaks in the future. I would not be hesitant to add up to those small positions if they start decreasing in prices. As usual, my holding period will be forever, unless dividends are cut, there is material deterioration in the business, or shares become terribly overvalued relative to their prospects. The other risk that most long-term dividend investors have suffered from is when a quality company you own is acquired by someone else. The premium price is bittersweet, because it usually discounts the business relative to profits it could have generated for the patient investor.
Full Disclosure: Long ROST and TJX
- Ross Stores (ROST) Dividend Stock Analysis
- TJX Companies (TJX) Dividend Stock Analysis
- Types of dividend growth stocks
- The Tradeoff between Dividend Yield and Dividend Growth
- Lower Entry Prices Mean Locking Higher Yields Today
A dividend king is a company that has managed to increase dividends every single year for at least 50 years in a row. There are only 20 com...
One of the advantages of being a dividend investor is that I invest in businesses that meet a certain qualitative and quantitative criteria...
I like to invest in quality companies, with an established track record of dividend increases. I want to acquire these quality companies at ...
This guest post has been written by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blog ...
I wanted to thank you all for reading the Dividend Growth Investor website. This site is a result of my efforts to improve my investing over...
Each week I review the list of dividend increases as part of my monitoring process. This exercise is helpful in evaluating how my existing ...
CVS Health Corporation (CVS), together with its subsidiaries, provides integrated pharmacy health care services. It operates through Pharmac...
The J. M. Smucker Company (SJM) engages in manufacturing and marketing branded food products primarily in the United States, Canada, and int...
Most readers know me as a person that buys a stock in a company I like, and then I keep building a position as long as valuation and allocat...
Another year has passed here in dividend growth investing land. This was a year with a lot of changes for me. It is time to evaluate what ha...