Dividend Growth Portfolio
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The Dividend Cash Flow Growth Newsletter For Individual Investors is a compilation of the best ideas for growing cash flow from dividends while maintaining yields based on proprietary metrics of Jefferson Research. It is a model portfolio for clients seeking yield and cash flow growth who are interested in buying research rather than investing their own time and money to generate ideas for their portfolios.
- Concept: Focuses on the “sweet spot” of investment returns – dividends and dividend growth – which have proven to be the largest contributor to total returns, dominating capital appreciation over time. This is done by investing in U.S. stocks that provide increasing cash flow over time, allowing distributions to grow at rates well in excess of the S&P 500.
- Goal: Dividend yield of 1.50 percent over the S&P 5000 with 20 percent lower volatility and dividend cash flow growth of 10+ percent per year.
- Metrics: Metrics will be run to assure sustainability of cash flow for dividend payments along with favorable fundamental metrics of Jefferson ratings.
- Universe: Primarily U.S. stocks with up to 20 percent of the portfolio in Canadian stocks. No REITs or MLPs. Market cap greater than $1 billion with a portfolio average of $10 billion or higher.
- Market Cap: Minimum of $1 billion.
- Trading Volume: In excess of 100,000 shares per day.
- Number of Holdings: 25-35
- Sector Allocations: All sectors are represented but no attempt is made to manage to the weighting of sectors in the S&P 500 or other indexes.
Advantages over other strategies
1. Dividend yield is higher than all major funds and nearly all ETF options.
- Vanguard High Yield Dividend fund is highest with a 2.78% yield in February 2012.
- Other identified dividend growth funds range from 1.13% to 2.15% yield in February 2012.
- Where an ETF has higher yields, it is exclusively a high yield fund with low growth rates.
- PEY: Powershares High Yield Equity Dividend Achievers: 3.71%
- VYM: Vanguard High Dividend Yield: 2.80%
2. Selectivity and risk management are superior.
- Highly selective process that is active, not passive like the index, Achiever, Aristocrat or Ruler styles of dividend investing.
- Use of proprietary forensic cash flow metrics to identify companies with strong fundamentals and eliminate risk of deteriorating fundamentals that are not captured by traditional funds.
- Forensics also allows assessment of cash flow and dividend coverage to determine potential for increase or sustainability of a company’s dividend policy.
- Use of forecasts for dividends, earnings and cash flows to confirm future growth potential.
3. Other advantages.
- Allows investors to hold companies that are doing well on a 3-5 year basis, but may not yet qualify to be Achievers – essentially buying the Achievers before they become “official Achievers” – giving investors a chance to achieve higher dividend growth potential.
- Ability to use slight tactical shifts as the market cycles. When the market outlook is more negative, greater weight will be put on high yield, low volatility stocks (e.g., utilities and telecom) and vice versa.