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)

DISCLAIMER
    I'm not an investment professional or a licensed financial advisor. This blog represents my personal views and decisions, which may not be appropriate for other investors. Please use common sense or consult with an investment professional before investing your money. I am not responsible for the outcomes of your decisions, nor am I responsible for the comments posted by readers or the contents of any linked websites. This blog should be viewed for educational or entertainment purposes only.

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