About

PORTFOLIO NAME
  • DivGro
    • generating a growing dividend income stream

GOALS
  • The main goal of this portfolio is to generate a reliable and growing dividend income stream
    – I'm aiming is to achieve and maintain a 12% yield on cost within 10 years of inception. 

CONSTITUTION
  • Brokerage: www.folioinvesting.com, www.scottrade.com
  • Creation date: Jan 1, 2013 
  • Initial investment: $12,000 
  • Recurring investments (monthly): 
    • $1,000 in 2013
    • $2,500 in 2014
    • $2,500 in 2015
    • $2,000 in 2016  REDUCED FOR 2016 
    • $1,000 in 2017  REDUCED FOR 2017 
STRATEGIES 

1. Maintain a watch list of quality stocks
  • Use established selection criteria to rank candidates monthly
  • Create a dashboard of top candidates, by sector and overall
2. Invest regularly without trying to time the market
  • Invest monthly and buy stocks in chunks of about $2,500 at a time 
  • Invest available capital in the best candidate(s) at the time 
3. Diversify without compromising overall quality
  • Diversify slowly to 20-30 36-42 48-52 60 stocks  NEW FOR 2016 
  • Aim for diversity across sectors
  • Target different ranges of dividend yields and growth rates 
4. Limit the percentage holding in a single stock to 20% 5%  SINCE 2014 


SELECTION CRITERIA  UPDATED: 28 DECEMBER 2015 

I use the following selection criteria to determine if a candidate stock is suitable for further analysis:

1. Dividend streak
  • At least 5 consecutive years of dividend increases
2. Dividend yield
  • At least 2% but less than 8%
3. Dividend growth
  • Median of 1-year, 3-year, and 5-year compound annual growth rates (CAGR) is at least 6%
4. Equity valuation multiple
  • Price to earnings ratio is less than 16
5. Dividend payout ratio
  • Ratio of dividend to earnings per share (EPS) is less than 60%
6. Debt ratio
  • Debt to equity ratio is below 60%
7. Fair value estimate
  • Price discount is at least 10% of fair value estimate
The above criteria are not quite suitable for real estate investment trusts (REITs), which are required to maintain dividend payout ratios of at least 90%. Here are the corresponding selection criteria for REITs, with changes highlighted:

1. Dividend streak
  • At least 5 consecutive years of dividend increases
2. Dividend yield
  • Yield is at least 4% but less than 10%
3. Dividend growth
  • Median of 1-year, 3-year, and 5-year CAGR is at least 3%
4. Equity valuation multiple
  • Price to funds from operations (FFO) is less than 16
5. Dividend payout ratio
  • Ratio of dividend to FFO per share is less than 80%
6. Debt ratio
  • Debt to market capitalization ratio is below 100%
7. Fair value estimate
  • Price discount is at least 10% of fair value estimate
Please note that I no longer invest in Master Limited Partnerships (MLPs) due to the complicated tax treatment. I dislike dealing with Schedule K-1's, which often arrive rather late and sometimes repeatedly with corrections. I feel the higher distribution rate is not worth the extra effort.


REJECTION CRITERIA  UPDATED: 28 DECEMBER 2015 

I'm not interested in buying a stock if the dividend has been cut within the last 5 years. I also avoid stocks of companies that will be acquired by another company, or companies that plan to merge with others. I will consider companies that plan to split up or spin off parts of their operations, but the reasons for buying shares would need to be very compelling.

Generally, I will sell all my shares after a dividend cut. If the dividend is frozen rather than cut, I may decide to hold onto my shares, depending on circumstances.


PERFORMANCE
  • Monthly estimates 
    • tabulate projected dividends for next 12 months
    • estimate yield on cost 
  • Quarterly reviews (key metric is amount of growth of dividend stream) 
    • tabulate realized and projected dividends for calendar year 
    • calculate yield on cost 
  • Annual review 
    • yield on cost for calendar year (compare with 12% goal) 
    • total yield for calendar year (compare with S&P 500 performance)

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