Last updated: April 22, 2023 (Note: See last section for summary of changes made in this update.)

Primary Goal of the Dividend Growth Portfolio

Build a reliable, steadily increasing stream of dividends over many years that can eventually be used as income for retirement.

Secondary Goal

Deliver total returns that are competitive with the general stock market as measured by the S&P 500 with dividends reinvested.

Portfolio Inception

The portfolio was begun on June 1, 2008 with a starting value of $46,783 funded by the author.

Additional New Money

No new outside money has been or will be added to the original amount.

That simplifies the calculation of returns, because none of the portfolio’s dividend, price, or total returns are skewed by the addition of new outside money since the original investment.

Dividend dollars, of course, enter the portfolio as they are paid by the companies. The flow of dividends is not considered to be “new outside money,” because the portfolio generates them on its own.

Dividend History

This is the portfolio’s dividend history through December 31, 2022:

The portfolio’s income has increased at a compound annual growth rate of 10.5% per year from 2009 – 2022. (2008 is ignored in the calculation, because 2008 was a partial year.)

Selecting Stocks

  1. To select stocks, I use the analytical methodology described in DGI Lesson 14. Practical applications of my stock-picking methods can be seen in the monthly updates for this portfolio, videos on my purchases, and in my eBook, Top 30 Dividend Growth Stocks for 2021: A Sensible Guide to Dividend Growth Investing.
  2. I purchase stocks with “Fair” or better valuations using the methodology described in DGI Lesson 11 and this video.

Reinvesting Dividends

  1. Dividends are not dripped. Rather, they are collected and reinvested selectively.
  2. I reinvest accumulated dividends once per month. The amount invested each month varies depending on how much cash was collected over the previous month.
  3. For each reinvestment, I select the best candidate at that time to buy. It could be a new stock or fund, or more shares to add to an existing position. With each purchase, I try to improve the portfolio along one or more dimensions, such as yield, company quality, dividend growth rate, dividend safety, diversification, and the like.
  4. Since the major focus is on income and not share prices, the portfolio is virtually 100% invested at all times, excluding only dividends that have been received and are awaiting reinvestment. Cash beyond that which is accumulating for reinvestment will not be held as “dry powder” in efforts to time the market or for any other purpose.

Portfolio Characteristics

  1. The portfolio will normally contain 25 – 35 positions.
  2. The portfolio will be well-rounded. It is diversified across economic sectors and industries. It is also diversified across a variety of yields and dividend growth rates.
  3. The portfolio is meant to be a straightforward illustration of all-purpose dividend growth investing. It is not tilted either toward fast dividend growth or high yield, and it does not purport to be “best” or a “model” for young, middle-age, or old investors, nor for any other subset of investors. The DGP is an illustration of the dividend-growth strategy rather than a model for it.
  4. Historically, the DGP’s yield has ranged between 3.1% to 4.2%, and it is usually in the vicinity of 3.5%. Its annual dividend growth rate – the speed of the annual growth in dividend dollars – has been 10.5% CAGR for over a decade, and that is expected to continue. The growth rate is powered by dividend increases, reinvesting dividends, and occasional adjustments to the portfolio.
  5. The portfolio will normally hold no more than 6% of its total value in a single stock.
  6. Other than the 6% ceiling, the portfolio is agnostic on position sizing. There is no minimum size requirement. The weights of holdings self-adjust as prices change and dividends are reinvested. Small positions may be built up through repeated reinvestments in the same stock or occasionally eliminated to keep the portfolio tidy.
  7. The portfolio is not rebalanced on any set schedule. However, occasionally a large position may be trimmed, with the money redirected to another position.

Selling Guidelines

  1. This portfolio is expected to have a low turnover rate. Unless there is a strong reason to sell or trim a position, the default action is to hold. The underlying strategy is to buy, collect, and hold good dividend growth stocks for long periods of time.
  2. However, selling or trimming will be seriously considered if any stock or fund:

(a) Cuts, freezes, or suspends its dividend.

(b) Bubbles or becomes seriously overvalued.

(c) Registers performance well short of expectations over an extended period of time (minimum one year).

(d) Is impacted by significant fundamental changes.

(e) Is going to be acquired.

(f) Announces plans to split itself into 2 companies or spin off a significant portion of its operations into a separate company.

(g) Sees its current yield rise above 9% or drop below 2%.

(h) Grows to where it is beyond 6% of the portfolio.

Strategic Reviews

  1. The portfolio is reviewed from a strategic level once or twice per year.
  2. This business plan is reviewed and amended as appropriate.

Strategies and Practices Not Used

1. Margin.
2. Shorting.
3. Options, futures, or other derivative investments. 

Summary of Changes to the Business Plan in April 2023

This new version of the Business Plan makes these changes:

  • Updated graph of annual dividend growth through end of 2022.
  • Reduced maximum position size from 8% to 6% of the portfolio.
  • Added/updated references to outside illustrative sources.
  • Clarified language in several places.