The Dividend Growth 50 | DGI For The DIY

The Dividend Growth Fifty (DG50) is a collection of the top dividend growth stocks in the market. It is the brainchild of Mike Nadel, and was created by asking eleven of the top authors on Seeking Alpha to select their best 50 “all-occasion” DGI companies to create a new “Nifty Fifty” for today’s market.

With this article, my goal is to explain the history of the project and its progress to date and to show the effectiveness of creating a diversified portfolio of high-quality dividend growth companies for new investors.

Background Of The Nifty Fifty

The “Nifty Fifty” was a group of high-growth stocks on the New York Stock Exchange in the late 1960s and early 1970s that was widely held by institutional investors. These blue chip stocks were bid up to extreme valuation levels as they were considered “one-decision” stocks that were meant to be bought and never sold.

In 1972, the S&P Index’s PE traded around a 19 PE, which was high by historical standards. However, with an average PE of 42, the members of the Nifty Fifty traded at more than twice those levels. Some of the highest multiples were owned by Polaroid (91), McDonalds (86), Walt Disney (82), and Avon Products (65).

The sky-high valuations were blamed in part for the stock market collapse of 1973-1974, as Xerox, Polaroid, and Avon saw declines of 70-90%, and have never re-attained their prior success.

This research paper by Jeremy Siegel is nearly twenty years old but offers some great insight into the Nifty Fifty. It shows how high valuations impacted investor returns in the twenty-six years following the 1972 market peak.

In short, he concluded that paying up for growth was worth it, but that overpaying for growth generally was not. He said, “Good growth stocks, like good wines, are often worth the price you have to pay”, but also acknowledged that the stocks with lower PE ratios tended to outperform those with higher ones. He also stated that “Diversification is a key to cutting risks and maintaining returns. No one stock or single industry is guaranteed to succeed.”

A New Nifty Fifty

In 2014, Seeking Alpha contributor Mike Nadel also wrote an interesting take on the subject with”Let’s Talk About The Nifty Fifty And Dividend Growth Investing.” He took a different angle on the topic after hearing comments from readers that buy-and-hold dividend growth investing “DGI” was a poor investing strategy. Their proof being examples of failed or failing companies like Sears Holdings, Eastman Kodak, and Polaroid.

Mike took the critic’s negative view to the extreme by looking at only the top seventeen companies from the Nifty Fifty list and then assuming that all the remaining companies went to zero. In his example, he assumed $1,000 was invested in each of the Nifty Fifty companies. He then also added an extra $100 in expenses to each for the high brokerage expenses that were charged in the ’60s. This came to a total of $55,000 invested.

As of the time of his article, Mike calculated that the top 17 companies appreciated in value to $3,716,815, which equates to an annualized return of 11.1% on the initial $55,000 investment. This compared favorably to the S&P’s 11.0% annualized return, especially when considering it doesn’t take into account any of the returns provided by the other 33 companies.

Here is his table of returns, as calculated on September 23, 2014:

Annualized Returns Of Nifty Fifty — Nifty Fifty Returns For Top 17 Stocks

The results of his research were eye-opening to me in three ways.

It powerfully demonstrates the effect of compounding over long periods of time. 10% annualized returns don’t sound overly impressive on the surface, but when compounded over 40 years it turns a $1,000 investment into roughly $50,000.
You don’t need to be perfect to be successful in investing. With a diversified portfolio of 50 companies, you can have 66% of them fail completely and still outperform the market.
Don’t try to outsmart the market, just buy great companies and hold them forever. Investors are often quick to react to the ups and downs of the market. This can lead to sales of positions when prices drop or perceived better opportunities arise. However, simply buying and holding and ignoring the noise can result in great returns over time.

Applying This Concept To Dividend Growth Investing

Mike Nadel used his analysis of the Nifty Fifty as the springboard to a collaborative project with some of the top contributors on Seeking Alpha. His goal? To select the 50 best “all-occasion” DGI companies in the stock market.

He did this by asking ten panelists to submit a list of their top fifty ideas, which resulted in 163 different stocks for consideration. This list was then condensed to a final Top 50 and was released as The New Nifty Fifty, Part 1 – Dividend Growth Style.

Here are the panelists he selected for the project:

This is an excellent group of contributors, as Mike assembled a group of investors with representatives from the Millennial, Gen-X, and Baby Boomer generations. I think this was important, as it provided stock ideas for young and old alike. This resulted in a list that includes the higher-yielding income stocks for retirees, while also including higher-growth stocks capable of producing capital appreciation.

The Dividend Growth 50 Stocks

Here are the 50 stocks that were selected, along with the information Mike included when the article was published:

For easy printing, here is a PDF Link of the Dividend Growth 50.

The final list has some outstanding companies on it, and I personally own 25 of the 50 companies selected. What strikes me is how well the list has held up considering it is now over eight years old. That shouldn’t be a surprise though, as many of the selections had 20+ year track records of dividend growth.

That said, there have been a few disappointments. Conoco Phillips $COP, Kinder Morgan $KMI, and HCP, Inc. $HCP have all suffered from dividend cuts. Also, Deere & Company $DE saw its dividend frozen for a time at $0.60 per share.

However, there is far more good than bad, and a 90% hit rate on continued dividend growth more than makes up for the cuts or freezes mentioned.

The Top 50 was an excellent compilation of dividend growth stocks, but it is far from an exhaustive list. Fortunately for readers, Mike followed up his initial article with Part II, where he listed the top ten picks from the panelists and provided commentary for some of the selections.

The New Nifty Fifty, Part 2: Dividend Growth Investing’s Greatest Hits

I found these two comments from Mike fascinating:

It was surprising enough that all 10 panelists agreed on only five companies for the New DGI Nifty Fifty. It’s absolutely stunning that not a single stock was a unanimous Top 10 choice.
In fact, there wasn’t a company that even nine of ten agreed upon, again disproving the myth that all DG investors think alike.

It’s remarkable enough that only five companies made it on all ten Top 50 lists, but that there wasn’t a single one that made it on all the Top 10’s goes to show that an investor needn’t be perfect to be successful.

There were 160 different stocks selected by at least one of the panelists. This certainly proves that not all Dividend Growth Investors think alike!

Company Valuations: Not An Exact Science

In Part III of the series, Mike revealed his Top 50 list and offered some commentary about his selections.

The New Nifty Fifty, Part 3: Dividend Growth Ideas And Valuations

His thoughts on Costco $COST were pretty much the same as my own on the company at the time:

My favorite from that group is Costco, which has a brilliant business model and superb management. So why don’t I own my No. 1 retailer, a company I far prefer to Wal-Mart? Because every time I look at it – which is almost every day the market is open, and sometimes on weekends! – it is overvalued.

Morningstar lists its trailing P/E ratio at 28.2, compared to 18.1 for the industry and 24.5 even for its own lofty five-year standard. Costco’s forward P/E is 25.4. I could use my wife’s 401(k) brokerage account to average into it over time, but doing so would annoy the cheapskate in me!

I don’t own Costco either, and it’s for much the same reason: It’s too richly valued! However, with shares now trading near the $500 level, that’s certainly been a mistake by me. On top of the capital gains, it also paid out a $5 special dividend in 2015, a $7 one in 2017, and a $10 one in 2020.

Mastercard $MA was also mentioned as a stock that trades at a high multiple, yet Mike noted that Morningstar rated it as undervalued. It appears that Morningstar was correct, as it is now trading at $361, an enormous gain from when the article was published.

These are two examples that have changed my perception of valuation and how it relates to building my portfolio. In the past, I mostly focused on stocks that I considered good values, while avoiding companies that I might have liked more but didn’t buy due to concerns of them being too expensive.

Warren Buffett’s quote “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” certainly applies.

I’m learning that high-quality, good-performing companies rarely trade at a discount unless there is a market meltdown going on. If I want to own them, I’m probably going to pay a bit more than I’d like to get them.

Mike Puts His Money Where His Mouth Is

In part IV of the series, Mike took things to a whole new level by taking $25k of his own cash and creating an equal-weighted portfolio of the 50 stocks on the list. He also branded it with a new name: The Dividend Growth 50.

It’s New! It’s Nifty! It’s The Dividend Growth 50!

It was a tremendous leap to put $25,000 of his hard-earned cash into an investment experiment, but let’s face it, he did so by buying the top dividend growth stocks in the market. He was also able to do so free of transaction costs, as he was able to secure 50 free trades from Fidelity to get it done.

In essence, he created his own ETF. Except with this one, there are no recurring fees and no churn among the holdings. This provides a higher dividend yield up front that will carry on as the portfolio holdings announce future increases.

In the spirit of tracking results, Mike also bought shares of three other investments: an S&P 500 ETF, a dividend growth ETF, and a dividend growth mutual fund.

While the primary purpose of this project is to see how the overall income stream grows over time, many readers love to make total-return comparisons. So I also spent $552.57 for three shares of Vanguard S&P 500 ETF $VOO and $477.18 for six shares of Vanguard Dividend Appreciation ETF $VIG Finally, I bought $5,006 worth of Vanguard Dividend Growth Fund Inv $VDIGX, representing one-fifth of the DG50 portfolio’s cost. That should allow for easy comparisons over the years.

I’m interested to see how this works out over time, as I suspect the DG50 will far outperform the funds in future income generation.

Dividend Growth 50 Portfolio Guidelines

Here are the rules set up for the portfolio:

All income will be reinvested into the companies that paid the dividends. Otherwise, there will be absolutely no buying or selling. This will be a passive portfolio – classic buy-and-hold. (Dividends and capital gains also will be reinvested into VOO, VIG and VDIGX.)
While the portfolio starts out as close to equally weighted as possible, it will not remain that way over time, because I will not rebalance. I will let the winners run and losers languish.
In the event of a spin-off, the new company will join the DG50 as kind of a plus-1. Will I change the name if the portfolio grows to 51 or 52 companies? I doubt it; the Big Ten didn’t change its name when it grew to 11 and then 12 and now 14 schools. Mergers will be handled on a case-by-case basis.
Should any companies go out of business, the value of those positions presumably would go to zero. The idea is to truly reflect the progress of these 50 companies, which the panelists deemed very high-quality.
If a company reduces or eliminates its dividend, or if its fundamentals erode, it will continue to be held. I want to see how the overall portfolio is affected by all manner of events, good and bad.
Because this portfolio is in an IRA, taxes will not be an issue until I am subject to required minimum distributions in 2031. By then, I will either have converted the portfolio to a Roth IRA to avoid RMDs or, more likely, I will have decided that 17 years was a long enough life span for this project.

I love how Mike set up the rules, as this will be a full-on experiment on the merits of buy-and-hold dividend growth investing. All dividends will be reinvested back into the companies that pay them, allowing positions to grow over time in size and dividend income. Doing so will provide actual total return numbers for each investment, and will demonstrate the power of compounding over the years.

Dividend Growth 50: Final Results

Mike Nadel posted his final update for the portfolio in May 2023. At the conclusion of the project, the portfolio roughly matched the total returns of the Vanguard S&P 500 ETF $VOO. It did so while producing significantly more dividend income than the index.

Here were the final tallies for the portfolio:

TABLE 1 – PORTFOLIO TOTAL RETURN

	COST 12/16/14	VALUE 12/16/22	DIFFERENCE	GAIN
DG50	$25,029.94	$55,833.62	$30,803.68	123.1%
VOO	$552.47	$1,232.85	$680.38	123.2%

TABLE 2 – DG50 INCOME GROWTH

YEAR	INCOME	INCREASE
2015	$811.82	7.6%
2016	$844.05	4.0%
2017	$913.11	8.2%
2018	$1,003.27	9.9%
2019	$1,093.06	8.9%
2020	$1,177.46	7.7%
2021	$1,261.54	7.1%
2022	$1,408.19	11.6%

Here are the returns produced by the top ten holdings in the portfolio:

COMPANY	TICKER	COST DEC. 16, 2014	PROCEEDS APRIL 4, 2023	TOTAL RETURN
Microsoft	(MSFT)	$506.61	$3,655.68	621.6%
Apple	(AAPL)	$546.32	$3,705.19	578.2%
Deere	(DE)	$537.68	$2,871.65	434.1%
NextEra Energy	(NEE)	$511.79	$1,891.57	301.2%
McDonald’s	(MCD)	$450.73	$1,746.39	287.5%
Visa	(V)	$515.69	$1,943.13	276.8%
Lockheed Martin	(LMT)	$559.74	$1,966.81	251.4%
Hershey	(HSY)	$494.29	$1,544.47	212.5%
Caterpillar	(CAT)	$453.00	$1,412.23	211.8%
Automatic Data Processing	(ADP)	$499.49	$1,549.10	210.1%

Here is the final update article that Mike wrote on the project:

Dividend Growth 50: Adieu, And Thanks For The Lessons Learned

Dividend Growth 50: Portfolio Updates

After the portfolio was created in 2014, Mike wrote numerous updates on its progress. He also wrote other articles about the DG50 project and shared the full list of the 160 stocks selected by the panel.

Here are the other articles in the series. They are well worth the read, and the extensive comments that follow are just as valuable as the original works themselves.

The articles are listed from oldest to newest, so if you are looking for the most recent update on the portfolio, head to the bottom of the page.

Dividend Growth 50: Costco Horns In On The Fun – Mike laments on missing out on Costco $COST in the portfolio, as it was the lone stock from his Top 10 that failed to make it into the DG50. He rectified the situation by buying a $500 position in the company, so he can now proudly call himself a Costco owner.

The Dividend Growth 50… Plus 113 More – Mike reveals the full listing of the 163 companies named in the project and his rationale behind the purchase of new positions in Amgen $AMGN and Gilead Sciences $GILD.

7% Raise For The Dividend Growth 50 – Mike provides his first update of the DG50, detailing the average 7% dividend increase and the capital gains seen in the portfolio.

8% Raise For The Dividend Growth 50 – Another portfolio update highlighting dividend increases and capital gains in the portfolio.

Surprise! Cash Invades The Dividend Growth 50 – A special dividend from the Kraft Heinz $KHC merger and a new company from the Baxter/Baxalta spinoff is discussed.

Dividend Growth 50: A Very Happy Anniversary – The one-year update for the DG50.

Dividend Growth 50: Woulda, Coulda, Shoulda! – A look at the 11 companies Mike had on his own Top 50 list that didn’t make the cut for the DG50.

Dividend Growth 50: Not Necessarily ‘Safe,’ But 35% Less ‘Sorry’ – Mike looks at the draw-down of the DG50 compared with the overall market after the stock market swoons in January of 2016.

I’ve Been ‘Kindered’! But Not Even Kinder Morgan’s Unkind Cut Can Devastate The Dividend Growth 50 – The portfolio overcomes a dividend cut from Kinder Morgan $KMI to still post an increase in income.

The Dividend Growth 50 Scores A Total Return ‘Upset’ – The DG50 posts higher dividend and capital growth than the S&P.

The Dividend Growth 50 Trumps The Market By Nearly 300% – The portfolio sees returns that far outpace the market, led by gains from WEC Energy $WEC and Realty Income $O.

Dividend Growth 50: Nothing Terrible About This Precocious 2-Year Old – The 2-year update on total returns seen in the DG50 portfolio.

Dividend Growth 50: Income Increased But Income Growth Was Stunted – Despite income losses from ConocoPhillips $COP, Kinder Morgan $KMI, HCP $HCP, and Baxter $BAX, the portfolio still saw 4.63% income growth in 2016.

Thanks For The 8% Raise, Dividend Growth 50! The Q1 2017 update highlights the DG50 income growth and provides Mike’s thoughts on potential buys in the market.

Dividend Growth 50: When Was The Last Time You Got An 8% Raise? The Q3 2017 update details the portfolio’s 8% income growth over 2016, provides info on recent dividend increase announcements and provides a look at a few stocks currently trading at attractive valuations.

Dividend Growth 50: It’s A Happy 3rd Anniversary, Even As Mr. Market Gets Some ‘Revenge’ – Part one of the Q4 2017 update highlights the total returns seen in the portfolio and how they compare to those given by Mr. Market.

Dividend Growth 50: This 8.18% Raise Is A Great Birthday Gift – Part two of the Q4 update documents the 8% dividend income increase in the portfolio and highlights the effect that dividend reinvestment is having on income growth.

Dividend Growth 50: Not Perfect, But Yet Another 8% Raise – The Q1 2018 update provides an important reminder to readers that one does not need to be perfect in investing to be successful.

Mike highlights the fact that portfolio income rose by 8.24% despite a 50% dividend cut from General Electric $GE, as it was more than made up for by large dividend increases from the likes of Visa Inc. $V, Aflac Inc. $AFL, NextEra Energy $NEE, and Dominion Energy $D.

Dividend Growth 50: Income Up Nearly 10%, Led By Kinder Morgan (Seriously!) – The Q2 2018 update highlights a big dividend increase from Kinder Morgan and twenty other companies that provided double-digit annual income growth.

Mike also provides links to recent dividend increase announcements and gives a few names he thinks are attractive buys at current prices.

Dividend Growth 50: Double-Digit Divvy Dollar Dandy! – The Q3 2018 update documents how the portfolio achieved 10.79% income growth, driven by 20%+ increases from the likes of Kinder Morgan, Starbucks, Visa, Automatic Data Processing, Aflac, and Baxter.

Dividend Growth 50: Beating The Market In Year 4 – The four-year update article on the DG50 portfolio. Highlights the gains and losses for each stock, and compares the portfolio’s returns with some benchmarks.

Dividend Growth 50: More In Year 4, With Income Up 10% – Part 2 – The second part of the annual update provides the income information for the portfolio, showing which stocks provide the highest growth, and how they managed to grow income by 9.87% over the last year.

Dividend Growth 50: Oh Deere Me, This Portfolio’s Income Just Keeps Plowing Ahead – Mike’s mid-year portfolio update highlights the large income increases from Deere & Company $DE and Kinder Morgan Inc. $KMI, who both provided dividend growth of ~30% over 2018. Not all is good, however, as General Electric $GE and The Kraft Heinz Company $KHC saw big dividends cuts in the past year.

Many Happy Returns As The Dividend Growth 50 Celebrates Its 5th Birthday – Mike gives the 2019 portfolio update, highlighting the excellent performance by Target, Microsoft, Qualcomm, and others.

High 5 For The Dividend Growth 50: Income Up 8.9% – Mike shares the income performance of the DG50 portfolio, which was led by big increases from Kinder Morgan and Baxter that offset dividend cuts from General Electric and Kraft Heinz.

Pandemic Pain For My Portfolios – But It’s Worse For Mr. Market – Discusses Covid-19’s impact on the portfolio and the stock market, and shows how the DG50 outperformed the indices during Q1 of 2020.

Dividend Growth 50: Big Income Growth, Minimal Pandemic Peril – Mike’s mid-year update shows 9.5% income growth for the portfolio, which happens despite the global Coronavirus pandemic. Big income gains were seen from Conoco-Phillips, Baxter, Caterpillar, Visa, and Kinder Morgan, and the portfolio has avoided any dividend cuts date. However, the merger between Raytheon and United Technologies will lead to a future loss in income, and Wells Fargo has guided for a potential cut later this year.

Dividend Growth 50: After 6 Years, Still The Apple (And Microsoft) Of My Eye – The DG50 approaches the $50k mark near the end of year six, led by 400%+ gains from Apple and Microsoft.

Dividend Growth 50: A Sea Of Calm In A Turbulent 2020 – Mike welcomes a 3rd grandchild and 7.7% income growth.

Dividend Growth 50: 7 Years, And Income Just Keeps Coming In – The portfolio sees 7.1% income growth, led by 15%+ gains from Lockheed Martin, Target, John Deere, and Aflac.

By Crushing The Market In Year 8, The DG50 Plays Catch-Up – The DG50 outperformed a down market, bringing it back to even at the 8-year mark. Microsoft, Deere, Apple, and NextEra lead the way with 300%+ gains to date.

DG50: Income In Year 8 Was Truly Great – The portfolio produced its biggest income gain at 11.6%, powered by strong dividend growth from Deere, Aflac, Target, Wells Fargo, and ConocoPhillips.