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Dividend growth investing, retirement
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  • Dividend Growth Portfolio (DGP) is a real portfolio, funded by the author, designed to demonstrate dividend growth investing.
  • The main goal of the portfolio is to generate growing dividends from excellent companies that raise their dividends regularly.
  • The portfolio has a long-term outlook, and it is managed in a way that tries to ignore short-term market noise.
  • Going on 6 years old, the DGP is on track to meet its long-range goals.

The Dividend Growth Portfolio (NYSEARCA:DGP) is a public, real-money, real-time portfolio that I launched in June, 2008. I think of it as an ongoing demonstration of a particular type of investing - dividend growth investing. It stands as a complement to the wealth of theoretical studies, back-tests, and rear-view-mirror suggestions that are in plentiful supply.

Questions and suggestions are welcome, but ultimately I am the CIO (Chief Investment Officer) for the DGP, and all decisions about it are mine. In making those decisions, I aim to achieve a particular goal, as stated in the Constitution for this portfolio:

The goal of the Dividend Growth Portfolio is to generate a steadily increasing stream of dividends paid by excellent, low-risk companies. The numerical target is for the portfolio to deliver 10 percent yield on cost within 10 years of inception. I am more interested in the ability of this portfolio to produce income than its sheer size.

I have written about this portfolio numerous times, most recently here: "Snowball Down A Hill: My Dividend Growth Portfolio 2013-2014 Report."


One of my practices is to give the DGP a checkup twice per year. These checkups are like checkups at your doctor's office. Certain tests are administered and evaluated, and your daily and strategic health habits are discussed. So the portfolio review is both strategic and tactical.

The basic questions are, How is the portfolio doing? Is it directionally heading toward its central goal? Should changes be made to keep it on track?

The portfolio reviews are formalized; I write them down on a form. During the review, I:

  • Summarize what has happened to each holding since the previous review.
  • Detail what actions (buys or sells) have been taken since the last review.
  • Go through each stock, position by position, and assess how that holding is doing from a performance and strategic point of view.
  • Establish any action steps that result from the review.

I do this on a Word form that I have developed over the years. Here are snapshots of that form.

Overall Summary

Sections 1 and 2 describe the portfolio from a high level and enumerate transactions since the previous review.

(click to enlarge)

Stock-by-Stock Examination

Section 3 takes a detailed look at each stock.

(click to enlarge)

(click to enlarge)

Dividend Growth Summary

The DGP's main purpose is to generate rising dividend cash streams. The 10-year goal is for the portfolio to reach a 10% yield on cost within 10 years of inception. This is the "10 by 10" goal that I have described elsewhere. (See "10 by 10: The Interaction of Dividend Yield and Growth.")

The portfolio has so far been quite successful at achieving the goal of generating increasing income. This screenshot is from my website, where the DGP is updated every month.

A few notes about dividend growth.

  • The numbers from 2008-2013 are actuals. The numbers for 2014 and for the next 12 months are projections based on known information. In making projections, no dividend increases are assumed unless they have already been announced.
  • The projected income increase for 2014 is currently +7%. That should go up as the year progresses, because several stocks in the portfolio have dividend increases to announce later in the year, plus I will be making two more dividend reinvestments this year. The portfolio's dividend stream will benefit from additional dividends paid by the shares that will be purchased with reinvested dividends.

I believe that I am on schedule to achieve the DGP's principal goal of generating 10% yield on cost within 10 years. Translated to dollars, that goal is the equivalent of saying that I want the portfolio to deliver $4678 in income in 2018, 10 years after the portfolio was launched.

In the following chart, the red line is the goal line (getting to the 10x10 goal by 2018), while the blue line shows the actuals through 2013 + the current projection for 2014.

Assessments of Each Stock

As you can see, I examine each stock's performance in light of the central goal of the portfolio. The objective is to decide what, if anything, ought to be done with each stock.

By far, the majority of actions are to continue to hold each stock. This is a low-transaction portfolio, reflecting one of the basic tenets of dividend growth investing, namely that it is based on long-term decisions to purchase high-quality companies and then exercise patience.

Most of the 17 stocks in this portfolio are doing more or less what I want. There have been a couple of disappointing dividend increases since the last review in October, 2013, such as BHP Billiton's (NYSE:BBL) 4% for the second year in a row and McDonald's (NYSE:MCD) 5% at the end of last year. I continue to hold AT&T (NYSE:T), which has had a string of 2% increases; I may need to decide at some point whether this deserves to keep its place in the portfolio. But for now, I like its 5.2% yield. Even though its annual increases have been paltry, its high yield generates dollars to reinvest, so growth comes that way.

Some other stocks delivered annual increases that were wonderful since the last review. These include Kinder Morgan Energy Partners (NYSE:KMP) with a total of 9% in 2013, Coca-Cola (NYSE:KO) with 9% in March, Alliant (NYSE:LNT) at 9% in January, and Lorillard (NYSE:LO) with 12% in February.

There are two stocks in the portfolio - DRI and SJR - that I have singled out for special attention.

Darden Restaurants (NYSE:DRI)

Darden has been issuing disappointing report after disappointing report. Overall revenues are down, same-store comparables are down, and so on. Management guidance is not positive. Its FASTGraph is kind of ugly.

With its estimated earnings for 2014 falling, its price has strayed into overvalued territory. I have to consider DRI as a company whose dividend is in danger of a freeze or even a cut. Its next dividend announcement will come in June or July. Last year, they had a nifty 10% increase, which makes you wonder whether they had a solid understanding of what was happening with their business. Right now, with a 4.3% yield, I am holding the stock, but I may stick a tight sell-stop under it if the market starts to abandon the stock. I would appreciate hearing others' opinions on DRI. Currently I have about a 9% paper profit (plus the dividends that have been received).

Shaw Communications (NYSE:SJR)

Shaw has entered a territory where I do not like to see any stock: It has a steady pattern of declining dividend growth. Here is what that looks like on the Dividend Champions document:

Notice that SJR's dividend growth rate (DGR) gets lower for each shorter time period: 10-yr > 5-yr > 3-yr > 1-yr. I don't like to see this. Last year's increase was under 3%. Again the yield is good at 4.1%, but I will be watching SJR more closely in the coming months. Hopefully they will reverse their declining pattern.

Reinvesting Dividends

I reinvest the dividends in this portfolio, but I don't drip them. I accumulate them to $1000, then buy a stock I am interested in. It could be more of a stock that I already own, or it could be a new position. Reinvesting dividends brings another layer of compounding into play, and therefore it accelerates the overall dividend growth in the portfolio each year.

I have already made one reinvestment this year. I bought Microsoft (NASDAQ:MSFT), a new position for the portfolio in January. I expect enough dividends to be generated to make two more reinvestments this year, one in May and one toward the end of the year.

I love to go shopping with accumulated dividends. As of now, I think I will add to a current position with one reinvestment and use the other to get a toehold in a new position. I am on a long-term mission to increase the DGP's diversification and level out the relative positions somewhat. I do not routinely rebalance the portfolio.


By its very nature, dividend growth investing does not normally lead to lots of trading. This year, there have been only 4 transactions. One of them was the dividend reinvestment to purchase MSFT just discussed.

The other three resulted from the sale of Intel (NASDAQ:INTC) in January. After the company froze its dividend last August, I hung around to see if they would increase the dividend in a later quarter. They did not, so at the end of January, I sold my stake in Intel at a slight profit. I used the proceeds to start a position in Coca-Cola , which I was able to get at a good (for KO) yield of 3.2%. I used the rest of the money to add to the position in Philip Morris (NYSE:PM) begun last year.

Total Performance

Total return is a secondary goal of the DGP. I want it to be competitive with the general market.

I compare the DGP to the S&P 500 for my own general interest, and because lots of readers seem to appreciate the comparison. Beating the S&P 500 - what many would call alpha - is not a specific goal of this portfolio.

That said, the DGP has been ahead of SPY (representing the S&P 500) since inception. Both portfolios are depicted with dividends reinvested.

Disclosure: I am long BBL, KMP, MCD, T, KO, MSFT, DRI, LNT, PM, INTC, LO, SJR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Dividend Growth Portfolio: Spring Checkup And Semi-Annual Review