Dividend Increases, May 17-31, 2014

Time again to report on dividend increases announced for stocks in my watch list. I compile this information to see if any of my DivGro stocks have raised their dividends so I can make yield on cost (YoC) adjustments and properly track DivGro's projected annual dividend income. Another reason is to review dividend increases for stocks I don't own.

Diversify!

One of my goals for 2014 is to increase the number of holdings in DivGro to 36 and to balance those holdings across all 10 sectors in my watch list. I reconstructed my watch list, following a similar approach to the one I use every month to identify 10 candidate stocks. In doing so, I arrived at a new target distribution for stocks by sector. This process of diversifying DivGro is going quite well.

Diversification is a way to reduce risk by adding variety to a portfolio. Assuming individual stocks are not perfectly correlated, the positive returns of some stocks should offset the negative returns of others. According to Investopedia, studies have shown that "maintaining a well-diversified portfolio of 25 to 30 stocks will yield the most cost-effective level of risk reduction". Increasing the number of holdings beyond 25 to 30 stocks will reduce risk further, but at a diminishing rate.

Dividend Increases, May 1-16, 2014

Every two weeks I report on dividend increases announced for stocks in my watch list, mainly to see if any of my DivGro stocks have raised their dividends. When that happens, I make yield on cost (YoC) adjustments and recalculate DivGro's projected annual dividend income. Another reason is to review dividend increases for stocks I don't own to see if some likely candidates present themselves.

Recent Buy: PMT

May 9, 2014: Bought 120 shares of PMT at $20.94 per share.

Founded in 2009 and based in Moorpark, California, PennyMac Mortgage Investment Trust (PMT) is a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. Operating as a real estate investment trust (REIT), the company is not subject to federal corporate income taxes if it distributes at least 90% of its taxable income to shareholders.

PMT is a Dividend Challenger with a 5-year streak of dividend increases. It pays quarterly dividends in January, April, July and October. The current dividend is 59¢ per share, so starting yield on cost is an impressive 11.27%.

10 Dividend Growth Stocks for May, 2014

This year, in an effort to balance my portfolio holdings across all 10 sectors in my watch list, I've changed the way I look for candidates. Rather than search for the best available candidates, I search for the best available candidates by sector. My purchases since January have diversified DivGro to at least 2 holdings per sector, except for Materials, in which I have a single holding. I'll continue to bias purchases with the goal to diversify DivGro, but only if I can identify candidates with good dividend yields and strong dividend growth rates trading at a discount to fair value.

Monthly Review: April 2014

In April, I added 2 new stocks to DivGro and compiled a new watch list. The additions pushed DivGro's projected annual dividend income above $4,000! This means I'll be earning $4,000 every year in perpetuity, assuming I keep DivGro as is and dividends are not reduced.

According to Wikipedia, a perpetuity is an annuity that has no end, or a stream of cash payments that continues forever. That is exactly what DivGro is for me – a perpetuity.

Of course, I intend to continue adding stocks to DivGro, which will increase the stream of cash payments. Also, since DivGro is a portfolio of dividend growth stocks, I'm expecting the stream of cash payments to increase even if I did not add more stocks to DivGro.

Dividend Increases, April 16-30, 2014

Last month, several stocks in my watch list announced dividend increases. I own shares in no fewer than 6 of these stocks! While ETP's increase is quite small at 1.63%, the other increases vary between 4.76% (APU) and 10% (TRV). Any dividend increase above 7% is great in my mind, as that certainly beats inflation and, therefore, represents real growth.

The reason I compile this information is to monitor dividend increases for stocks I own in DivGro so I can make yield on cost (YoC) adjustments and properly track DivGro's projected annual dividend income. Another reason is to review dividend increases for stocks in my watch list that I don't own, to see if any interesting candidates present themselves.