Dividend growth investing is the strategy of buying shares in companies that have a history of paying reliable and increasing dividends.
I began practicing this investment strategy in early 2013 when I sold out of the mutual funds in my retirement account and used the proceeds to create a collection of 50 dividend growth stocks, which evolved into the DGI For The DIY portfolio.
My goal is to fund a significant part of my future retirement with the increasing dividend income stream that this account produces. I give monthly updates of the portfolio’s dividend growth progress to document my journey and offer an example for others who are interested in taking control of their own retirement accounts by becoming self-directed investors.
The last of my April dividends hit the account on Monday, allowing me to update the DGI For The DIY portfolio spreadsheet and see the progress made in the portfolio.
Here are the final income numbers for the month, along with a comparison to 2016’s totals:
The portfolio saw a 10% increase in dividend income over 2016 totals. This increase comes from a combination of organic dividend increases, reinvestment of dividends, and purchases made over the last year.
Two weeks ago I published my predictions for the 11 dividend increase announcements there were expected in my portfolio during the first quarter. Shortly thereafter, Polaris Industries Inc. $PII announced a 5.45% boost to its dividend, which was a pleasant surprise to the upside compared to my prediction.
On February 7th, two more companies, Gilead Sciences $GILD and Church & Dwight Co., Inc. $CHD, announced their new rates. Before we discuss the increases, let’s take a look at my original prediction.
I was just going over some of my sector-based watch lists and was struck by the wide variety of dividend payout ratio targets that have been set by companies. This got me thinking about how often investors, and specifically dividend investors, use payout ratio as an initial screening tool for finding potential investments.
Not only do payout ratios vary significantly from sector to sector, but they also can vary significantly between companies operating in similar businesses. For example, it is quite common for utility companies to pay out more than 50% of their earnings in dividends, as they operate in generally stable businesses that have predictable earnings. However, when looking at my 30 stock utility watch list, there is a range of targeted payout ratios from 40-75%, with UGI Corporation $UGI on the low end and Dominion Resources $D at the top.
Another eventful year in the market has come to a close, and that means it is time to provide a new update on my dividend growth portfolio.
This update is a bit different for me, as it is the first one I’ve made since starting this new website. I’m still trying to find balance between simply restating what I already said in my Seeking Alpha update, and providing some new insight here.
2016 was a good one for the markets, as the DJIA gained more than 15%, while the S&P gained 11% for the year. My portfolio also did quite well, putting up 15.6% income growth and increasing in value by 24.1% (including contributions).