Where to search for investment opportunities?

There are thousands of companies in the world, who have chosen to list their shares on a stock exchange. It would take a lifelong journey, in order to learn everything there is about every one about these publicly traded companies. Fortunately, out of that large universe of investments, less than 300 represent that investment universe of dividend growth investors.

As a dividend growth investor, your goal is to select investments that can afford to increase distributions every single year. The three lists I focus my attention on include:

Dividend champions: This list is maintained by David Fish. It includes all companies which have managed to increase dividends for at least 25 years in a row. In addition, David's list also includes Dividend Contenders, which are companies that have managed to increase dividends for at least ten years in a row. The champions and contender lists are superior to the dividend aristocrats and dividend achievers lists, because they are not excluding companies based on superficial criteria such as market capitalization or average trading volume. Therefore, they provide a more complete population of potential investment ideas for the enterprising dividend investor.

International Dividend Achievers: This list includes companies which are domiciled outside of the US, which have managed to increase dividends for at least five consecutive years. It is generally helpful to be aware of international companies which have achieved a track record of consistent dividend increases, since those are not followed by many income seeking investors. However, you should also be aware of the pros and cons of investing in international dividend stocks.

I require at least 10 years of consecutive dividend increases, in order to weed out companies that simply got lucky in a positive economic trend. I do not believe in a business model that has not gone through the average of two economic cycles, which the decade is equivalent to. I want high odds that the business earnings power will be immune to shocks during the next recession, in order to ensure uninterrupted and growing distribution payments to shareholders.

You should learn as much as possible about these companies, even if they are always overvalued. If you can track all 300 of them, you would have the knowledge necessary to act, should the right but brief opportunity arrives.If you gain that knowledge, you would be able to specialize in a strategy you know very well, and earn good returns on your capital. Over time, this knowledge will accumulate like compound interest, and lead to better outcomes for your portfolio.

Full Disclosure: None

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How to identify your dividend investment goals

You have saved up some money after working hard for many years, and now you have decided to put it to work. You see hundreds of articles on investing online, and hundreds of strategies that promise you everything. You are getting information overload. How should you select your strategy?

The first goal when selecting your strategy is to determine what your desired end result should be. For most investors who want a strategy that would help them in accumulating a certain level of target monthly income, dividend investing might be the best solution. The goal should be very specific, and should incorporate as much information as possible to fit the objectives of the investor.

As a result, the goal of earning $1000/month in dividend income is more specific as accumulating a nest egg of $300,000. This is because accumulating a nest egg of $300,000 does not automatically translate into the desired target monthly income to meet expenses, and does not discuss how to pensionize this asset.

For example, my goal is to generate a sustainable level of dividend income, which maintains its purchasing power over time, at the minimum. This would be achieved by creating a diversified dividend portfolio, consisting of quality dividend growth stocks that I try to acquire at attractive valuations over time.

Your dividend investing goals should take into account things like amount you can put to work every month, the time until you retire, as well as make reasonable assumptions about investment returns (initial yield, earnings and dividend growth).

For example, if you put $1000/month in a portfolio of dividend paying stocks that yield 4% and grow distributions at 6% per year, you can expect to earn $1000 in monthly dividends in 12.5 years. If you increase your contributions to $2000/month, you will be able to generate $1000 in monthly dividend income in only eight years.

The types of dividend paying stocks, which could be part of such a portfolio could include:

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products.The company has managed to boost distributions from 46 cents/share in 2008 to 94 cents/share presently. Currently, the stock yields a very reasonable 4.60%. Check my analysis of Philip Morris International.

Unilever PLC (UL) operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Turkey, Russia, Ukraine, Belarus, Europe, and the Americas. The company has increased dividends for at least 15 years in a row. The stock yields 3.65%. Check my analysis of Unilever.

In addition, that investment plan should discuss more issues, such as where to start your search for investment opportunities, how to analyze them, when to buy, how to manage your portfolio and when to sell. Over the next few weeks, I would discuss each one of these bullet points, and walk you through the complete dividend plan, from beginning to end.

Full Disclosure: Long PM, UL

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How to become a successful dividend investor

There are several guidelines about becoming a successful dividend investor. They are centered around several key points I am going to be discussing in the next three weeks. I will be updating this post with links to articles on the process of becoming a successful investor.

The series of articles over the next three weeks will be a high level summary of my dividend investment plan today. If I were to start dividend investing today, I would find the collection of posts to be of tremendous value. In other words, the articles I will be posting are similar to a free course on dividend investing.

Lesson One: How to identify your dividend investment goals?

Lesson Two: Where to search for investment opportunities?

Lesson Three: When to buy dividend paying stocks?

Lesson Four: How to analyze investment opportunities?

Lesson Five: How to Manage Your Dividend Portfolio

Lesson Six:  How to deal with new cash from dividend payments

Lesson Seven: How to monitor your dividend investments

Lesson Eight: When to sell your dividend stocks?

Best Income Investing Articles for March 2014

For your weekend reading enjoyment, I have highlighted a few interesting articles from the archives, which I find to be relevant today. The first five articles have been written and posted on this site, while the last five have been selected from other authors. I tend to post anywhere between three to four articles to my site every week. I usually try to write at least one or two articles that contain timeless information concerning dividend investing. This could include information about my strategy, or other pieces of information, which could be useful to dividend investors.

Below, I have highlighted a few articles posted on this site, which many readers have found interesting:

Richard Kinder: The Warren Buffett of Energy

I admire investors with skin in the game, who are fully invested in the company they manage. Richard Kinder is one such person, who has built an energy empire in the US, and continues to expand its legacy. He reminds me of Warren Buffett, only that Richard Kinder is focusing only on energy.

Why Did I Purchase This Dividend Paying Company For a Third Month in a Row?

Back in early 2014, I started dollar cost averaging in this company. I broke up my position size using Loyal3 commission free brokerage, and decided to take advantage of this opportunity. The time to purchase blue chip dividend paying companies is when there are some bad news that are widely known, which depresses prices since it scares the amateurs away. To paraphrase Buffett, when everyone is fearful, you have to be greedy.

Accenture PLC (ACN) Dividend Stock Analysis

Last week, I initiated a half position in the consulting company. I like the prospects for earnings and dividend growth, the attractive valuation and the strong brand and quality of long-term business relationships under the company's belt. In addition, this company is a cash machine, which requires very little in fixed costs in order to operate successfully and expand the business. One thing to note is the Irish Withholding tax, and the fact dividends are paid semi-annually.

Do not become a victim of fear in your dividend investing

Many investors tend to obtain their information from secondary sources, some of which try to confuse them purposefully in an effort to increase circulation. In this article, I outline the importance of thinking for yourself, after carefully examining facts, and not overly relying on other people's opinions.

I read a lot about companies, and also read a lot of interesting articles from all over the web. A few that I really enjoyed over the past months include:

20 Favorite Dividend Growth Stocks from 20 Dividend Growth Bloggers

My friend Dan Mac polled twenty dividend investing website writers for their favorite stock picks. He also was kind enough to include me in the poll. You would have to check the article out for yourself, but the most loved company seems to be Coca-Cola (KO).

Dividend Stocks vs. Dividend ETFs

My friend James over at Dividend Growth Stocks compares Dividend ETF's to Dividend Stocks. I find it very interesting that many serious dividend investors prefer to build their own portfolios, rather than choosing the pre-packaged investments available out there and having no say over portfolio distributions. One of the main reasons I am against Dividend ETFs is the fact that frequent turnover results in fluctuating income.

Selective Dividend Reinvestment Vs. DRIP

My friend Jason from Dividend Mantra wrote a very thorough article where he compares the benefits and drawbacks of automatic versus selective dividend reinvestment. The selective reinvestment works for him, because he is able to save several thousand per month, and pool those resources with his dividend income in order to purchase more dividend paying stocks. I do exactly the same thing. However, if I could only afford to invest a few hundred dollars a month, chances are that I would be dripping.

Thank you for reading Dividend Growth Investor site. I am also on Twitter, if you are interested in following me on another platform, where I post about recent trades I have made.

Dividend Stocks for Consistent Cash Income

I was recently away from home for a two week period. During the time, I did not have the opportunity to check email or look at my dividend stock portfolio. The first thing I did after coming back was log on to my brokerage accounts. I noticed that everything had gone smoothly and I had more in cash than before. This should hardly come as a surprise to most readers – dividend investing is a low key, low activity process. It does not involve staring at a computer screen for 8 hours a day nor does my portfolio require tinkering every day, week or month. Most of the companies I tend to purchase are held as long term investments. Heck, even if I don't do anything with my dividend for a couple of years, I highly doubt my portfolio income will be affected.

I am mostly a buy and hold dividend investor. I tend to purchase companies, which have a quality product or service that is valued by customers, and which have been able to deliver dividend increases for at least one decade. Most of these companies, such as McDonald’s (MCD) or PepsiCo (PEP) tend to remain in the same lines of business for years, as they have the expertise and know-how to keep existing activities and also continuously improve in order to stay competitive. Even five or ten years from now, both companies would still be performing essentially the same things they are doing today. These strong brands are synonymous for quality and consistency of product/service, which is why consumers are willing to pay up. This translates into strong pricing power that enables companies to remain profitable, and pass on cost increases to customers, while retaining and even increasing profitability. Most such companies also tend to sell their products on a global scale, which ensures that they are not overly dependent on a single marketplace. Because these companies tend to have a stable, predictable business models, and because they have a diversified income streams coming from countries around the world, they tend to deliver dependable earnings and thus afford to pay dependable dividends to shareholders.

By owning companies with consistent earnings, I tend to generate consistent dividends every quarter. I typically let distributions accumulate in cash and do not automatically reinvest them. However, once amount f cash reaches $1,000, I tend to initiate or add to stock positions. I only tend to reinvest dividends in companies that are currently attractively valued, and whose prospects appear bullish. In other words, if my analysis indicates that a company has a decent chance of increasing earnings and dividends over time, and it is attractively priced at the moment, I would consider allocating any excess cash I have. This excess cash could be from dividends I received, and need to reinvest, or from new contributions. I do not automatically reinvest dividends, because I do not want to invest in companies which are overvalued at the moment, even if they have great long-term prospects. The frustrations of millions of US investors over the past decade, also referred to as the lost decade for US stocks, were primarily caused by excessive valuations in 2000. Even some solid companies such as Johnson & Johnson (JNJ) or Coca-Cola (KO) were overvalued in 1999 - 2000, which led to poor total returns over the next decade, despite the fact that their underlying businesses were growing.

The positive factor for owning quality dividend growth companies is that they tend to generate solid increases in dividend income, coupled with solid total returns. Another positive is the ability to compound income and total returns over time. Companies such as Johnson & Johnson (JNJ), Phillips Morris International (PM) and Casey’s (CASY) have been able to create strategies for increasing earnings, and then executing them. This has led to higher earnings and trickled down into higher distributions. As a result, investors who meticulously reinvested distributions at attractive valuations were rewarded by the amount of reinvestment plus the increase in distribution. As a result, they had effectively managed to turbo-charge their dividend compounding. The fact that earnings are growing, also makes the underlying businesses that dividend investors have put their hard earned money in, even more valuable. As other investors realize the extra value for the dividend paying company, they tends to deliver solid capital gains in the process as well. This icing on the cake also protects the purchasing value of the investment portfolio against inflation.

Full Disclosure: Long  MCD, PEP, KO, JNJ, CASY, PM

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