Quarterly Review, Q1-2013

The first quarter of DivGro has come to an end and its time to look at the portfolio's performance.

As stated elsewhere on this blog, the goals of DivGro are to generate reliable and growing dividend income and to generate acceptable total returns exceeding the performance of the S&P 500 index. My strategy is to buy stocks of companies that consistently pay and increase their dividends. By reinvesting those dividends, I'll benefit from compounding and, over time, generate a return that handily beats inflation.

During this quarter, I contributed capital funds in the amount of $16,000 to DivGro (an opening deposit of $12,000 and 4 additional deposits of $1,000 each) and purchased a total of 5 dividend growth stocks. These stocks represent expected dividend income for 2013 of $721.09. At the end of March, DivGro had a market value of $16,736.95. Included in the overall gain of $736.95 is dividend income of $138.88.

Recent Buy: AFL

Apr 16, 2013: Bought 50 shares of AFL at $50.06 per share.

In my recent stock analysis of Aflac Incorporated (AFL), I identified AFL as a 7-star (strong buy) candidate. AFL is in the Financial sector and increases DivGro's diversification. With this purchase, I'm locking in an initial yield on cost of 2.80%.

Stock Analysis: COP

ConocoPhillips (COP) is an American multinational energy corporation with headquarters in Houston. Created in 2002 through a merger of Conoco Inc and Phillips Petrolium Company, COP became the 5^th largest integrated oil company in the world. In 2012, COP spun off its downstream assets to Phillips 66 (PSX), with the intent of maximizing shareholder value.

COP has a track record of 12 consecutive years of dividend increases. It pays quarterly dividends of $0.66 per share in the months of February, May, July, and October. At the current price of $57.44, COP's dividend yield is 4.6%.

Over the past 10 years, COP has outperformed the S&P500 handily, returning about 130% compared to about 90% for the S&P500. The EPS growth rate over this time period is 6%, while the 10-year dividend growth rate is 13.9%. 

Stock Analysis: AFL

Aflac Incorporated (AFL) is a supplemental health and life insurance company and a member of the Fortune 500. AFL mainly operates in Japan and the US. Sales in Japan target health and life insurance, as well as annuity products, and account for approximately 77% of Aflac’s total revenue. In the US, Aflac sells health and disability insurance, mainly as part of employer sponsored group insurance plans.

AFL is a Dividend Champion, with a track record of 30 consecutive years of dividend increases. It pays quarterly dividends of $0.35 per share in the months of February, May, August, and November. At the current price of $50.11, AFL's dividend yield is 2.79%.

Over the past decade, AFL's annual dividend payment has increased by about 20% per year, though the rate of increase has slowed over the last five years. The 20% growth in distributions translates into a dividend payment that doubles in about 3.5 years.

Dividend Increases, Mar/Apr 2013

Around the 15^th of each month,  I'll be updating my watch list of dividend growth stocks to reflect current yields. These change over time due to changes in the stock price and changes in dividend payments. 

Since March 15, the market increased by another 1.64% (as measured by the S&P 500) and by 2.24% (as measured by the Dow Jones Industrial Average). The current yield of dividend paying stocks will decrease when stock prices increase.

When a company increases its dividend payment, the current yield also should increase. The size of the  increase not only depends on the size of the dividend increase, but also on the market's reaction to the increase. Often, a dividend increase stimulates interest in the stock and results in a corresponding increase in the stock price, which in turn would limit the increase in current yield.

Bonus Deposit, April 2013

On April 2, I deposited an additional $10,000 cash into my DivGro portfolio. This bonus deposit is in addition to my regularly scheduled deposits and follows from having closed a certificate of deposit (CD) account after the CD had matured.

A CD is a promissary note issued by a bank for a deposit made for a specified term. The holder is restricted from withdrawing funds on demand, at least without incurring a penalty. In return, the bank offers an interest rate that is slightly better than those for savings and checking accounts. Deposits are FDIC insured, which makes these type of investments safer than investing in stocks. Unfortunately, interest rates offered on CDs are below the inflation rate (currently 2%), which means your investment actually is losing value (buying power) over time.