Part II, Dividend Growth Is Vital

In our previous blog on dividend investing, we offered some of our dividend research and an over-all theory on how to think about the need for both dividend yield and dividend development. In this edition, we will share some of our insights into how different mixtures of dividend produce and growth action in various types of stock markets. When most people think of dividend-paying stocks, often they incorrectly believe such companies are uncommon. The truth is among the 500 stocks in the S&P Index, 400 of these pay a dividend nearly. Why is a ongoing company valuable, according to our research, is that it has raised its dividend persistently and regularly over a long time.

We do not place hard limitations on these descriptors because we do not want to remove companies which have persistently and regularly raised their dividends but not on a calendar basis. United Technologies (UTX), for instance, increases its dividend every six quarters; thus, having years where it does not increase its dividend on the calendar basis. The every-six-quarters approach is persistent and consistent, but UTX does not make the lists of dividend superstars because of the occasional calendar miss. Our research in the dividend world started with the tool sector in the past due 1980s. That early research exposed some amazing results.

Over any longer period, say five to ten years, the companies with the cheapest dividend produces and the best consistent dividend development were the very best performers. We found the same trend worked well in virtually all the major industry industries, including those with low dividend yields. Dividend growth at approximately the rate of inflation.

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Sub-Portfolio A stocks most often result from Consumer Cyclical, Tech, and Industrial areas. Sub-Portfolio B shares will be the change of Sub-Portfolio A stocks and shares just. Portfolio B stocks have a much higher than average dividend yield coupled with dividend growth at about the rate of inflation. They often times have a dividend yield the speed of the common stock double. They almost always perform well relative to the average stock in slow growth environments or in bear markets.

Sub-Portfolio B normally lag the average stock in strong bull marketplaces. Sub-Portfolio C stocks are well known stocks of the three portfolios, however they are the rarest. They combine an increased than average dividend produce with at least an average annual dividend development rate. These stocks are usually the most undervalued of most stocks in the portfolio from the perspective of our valuation models.

That is basically because these businesses are usually facing some kind of headwinds or uncertainties. Our models are good at finding these companies, but their attractiveness is clouded by a huge question mark hanging over them always. That is where our investment strategists become critical. It is their job to dig deeply into the company and determine if the headwinds are temporary or permanent.