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
Relevant Articles:
- 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
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Those 2 retail stores has a strong brand and huge customer base. I personally like to shop at Ross, we bought a set of bed sheet just yesterday for $5.
ReplyDeleteThe fundamentals are solid and great management.
Thanks for stopping by and commenting. I hate shopping, yet I have shopped at TJ Maxx and Marshall's a lot. I am also influenced by the people I know, who like to shop there a lot.I recently visited a ROSS location, and I was impressed. Though it seemed a little sketchier in comparison to the TJX or Marshall's I shop at. It was packed though.
DeleteDividend Growth Investor...
ReplyDeleteNice article, as always.
Respectfully,
Dennis McCain
Hi Dennis,
DeleteThanks for stopping by. I wuold love to see an analysis of either company on your site too.
Best Regards,
DGI
DGI,
ReplyDeleteI like both of these companies a lot, and shop at both. Been watching ROST recently, especially after the earnings. Considering a position as well. Excellent total return investment with the DG. Also enjoyed your piece on TJX. Curious if you've thought about DSW as well? New to the CCC list, no debt.
-RBD
Hi RBD,
DeleteThanks for stopping by. ROST and TJX seem pricey, and hopefully will be available at lower prices at some point in the near future. Either way, the businesses have room for expansion to their bottom lines.
As for DSW, I have not analyzed them. I might take a closer look however. I am familiar with their stores, but not the business. Thanks for the tip! Do you have an analysis on the company in the works?
DGI
Nothing in the works. Came across it while researching debt free CCC's. Did a little leg work on it. Keeping it on my radar here on.
DeleteNice stocks, but the forward PE is 40% and 50% over the 10 years average. So the earnings for next 2 years are yet included in the price. 2 Years ago they were cheap, but now ...
ReplyDeleteYep, the P/E ratios are at the top range of the past decade. So hopefully share prices go down, to compress those valuation multiples. However, the valuation for common stocks as a whole is higher than average as well - hence on a relative basis they are not as expensive.
DeletePlus, this is the first step in hopefully a several purchases down the road. It is easier to monitor companies you are interested in, when you have skin in the game. And last, future growth could "bail me out". Or prove I should not be chasing growth. Either way, my holding period is in years.
Hey DGI,
ReplyDeleteI particularly love this quote in your post:
"I am hopeful that those seeds will turn into mighty oaks in the future."
Will keep that in my head as dividends grow and prices falter if a correction comes about soon.
Congratulations on your purchases though, I liked your analyses and the dividend growth on them are really sweet.
Best regards,
DB
Hi DB,
DeleteThanks for stopping by. I try to post analyses once per week, if time permits. Glad you enjoyed them!
Have a nice week!
DGI
I like the fact that you have picked a company which has increased dividends for a decade. Of course this is no guarantee that dividends will continue to rise, but it is a good company for now.
ReplyDeleteWhat is the purpose of your comment other than to try and drive people to your site by linking to it? Did you even read the article before posting your comment?
DeleteI added ROST last week as well and might add TJX to complement the position. TJX has better scale and has already proven an ability to expand internationally but ROST is smaller and has much more room for growth. Really like both of these companies. Just wish I had more investment capital available right now. Thanks for the update.
ReplyDeleteHi PIP,
DeleteI guess it is true that great minds think alike! I agree that TJX is more proven, while ROST is not. However as you pointed out, ROST could potentially deliver better results going forward. I liked your analyses of both stocks by the way. You should have posted them on your own site, not Seeking Alpha. Otherwise, you are building their site, not yours.
Do you have a spreadsheet or page somewhere listing what stocks you currently hold? Or do you have a recommendation for stocks to own (both for US and non-US residents - I am not a US resident and am at this point not going to use currency conversion in an RRSP for US stocks so I'd likely be focusing more on TSX traded stocks for now until I build up a portfolio) when first starting out to build a dividend portfolio?
ReplyDeleteI am currently going to use a system where I have 50% or more of my portfolio in indexes and the rest I will build up long term positions in dividend stocks. Will likely just stick for forever blue chip stocks and diversify over time (right now just have the ETF - ZRE and ENB Enbridge (TSX). Neither being enough to DRIP in TD Direct Investing).