Ten Year Challenge

[Kerim]

A lot of people love to quote Buffet saying that “I buy on the assumption that they could close the market the next day and not reopen it for five years.”

In that spirit, and with New Year’s upon us, how about we undertake the ten-year challenge?

Rules: You’ve got $100,000 to invest in no more than 10 dividend growth stocks at today’s prices. Investments must be in $10,000 chunks. You won’t be able to trade them for 10 years. Dividends will be automatically reinvested in the companies that pay them. Goal is highest value at the end of 10 years.

I’m not assuming this will be something we’ll actually look back on in 10 years to declare a winner. (I can only hope that the site will be around that long!) But it should be an informative exercise in any case, to pick the safest companies that still offer a good profile of yield and dividend growth.

I’ll go first:

$20,000 PM
$10,000 MO
$10,000 XOM
$10,000 PSX
$10,000 JNJ
$10,000 KO
$10,000 AFL
$10,000 DE
$10,000 O

[fiveoh]

Sounds fun, I'm in.

20,000 WMT
20,000 PEP
20,000 XOM
10,000 AFL
10,000 LO
10,000 AAPL
10,000 KO

I'm surprised to see you put O on your list when the goal is TR.

[EricL]

Going heavy with energy with a few high growth stocks and a couple stalwarts thrown in. Hopefully we are all around in 10 years to see how this goes!

$10K EOG
$10K PSX
$10K PM
$10K KO
$10K SBUX
$10K QCOM
$10K WAG
$10K JNJ
$10K CMI
$10K COP

[cannew]

Suggestion for my son were:

ABT
HRS
JNJ
PM
PG
WMT
KO
MCD
XOM
ITW

Prosperous New Year to all!

[KenBob]

A lot of this depends upon the when the stocks are bought,so this list corresponds to what is a good value at this time. Below are my list of 10 stocks at $10,000 each.

DPS
HCP
INTC
JNJ
KRFT
MCD
MRK
MSFT
OXY
PSA

[rnsmth]

I don't do challenges

[Dividend Watcher]

I'll join in just for the heck of it. Who's going to keep track of all these?

All in one of our portfolios except MO & TJX. I own LO and think, with Blu, they have a chance of keeping up with MO/PM but still like MO's diversity out of just nicotine products. Both on the buy list for my wife's portfolio. One for the dividend now and one for the consistent faster growth.

Mix of yield and growth. No special analysis, just the picks off the top of my head with a bright future. Spread out at $10K each.

Symbol P/E Yld GICS
CVX 10.2 3.2% 10-Energy
UTX 20.1 2.1% 20-Industrials/Defense/Conglomerate
TJX 21.5 0.9% 25-Consumer Discretionary
KO 21.4 2.7% 30-Consumer Staples
MO 15.0 5.0% 30-Consumer Staples
ABBV 18.5 3.0% 35-Healthcare
BAX 17.6 2.8% 35-Healthcare
AFL 10.2 2.2% 40-Financials
O 54.1 5.84% 40-Financials
RCI 13.6 3.6% 50-Telecom

I like some of the other picks too -- not fair to limit us to 10.

[ChadR]

Good challenge Kermin.

20k PM
10K MO
10K LO
10K IBM
10K TGT
10K PEP
10K KO
10K KMI
10K V

I'm hoping with this portfolio that marijuana becomes legal within 10 years throughout the US and the cigarette companies take the lead and being the major manufacturers.

[hendi_alex]

I wonder what relationship, if any, exists between dividend growth and total returns? It could be that a portfolio that is structured purely toward dividend growth is one that is structured toward chronic under performance. After all, higher dividend payouts are usually a trait of more mature, slower growing companies which can't find more productive use of the cash. On the other hand, smaller cap companies tend to be faster growing and can deploy all of their cash into organic growth that turns out to be the best use of that cash, better both for the company and for the share holder.

I'm a big believer in dividend stocks, but think that getting 100% focused on a DG type portfolio could be counter productive to one's wealth, especially for those with decades before retirement. Does anyone have any thoughts on what allocation, if any, one should give to smaller cap growth companies?

[rnsmth]

(01-02-2014, 11:07 AM)hendi_alex Wrote: I wonder what relationship, if any, exists between dividend growth and total returns? It could be that a portfolio that is structured purely toward dividend growth is one that is structured toward chronic under performance. After all, higher dividend payouts are usually a trait of more mature, slower growing companies which can't find more productive use of the cash. On the other hand, smaller cap companies tend to be faster growing and can deploy all of their cash into organic growth that turns out to be the best use of that cash, better both for the company and for the share holder.

I'm a big believer in dividend stocks, but think that getting 100% focused on a DG type portfolio could be counter productive to one's wealth, especially for those with decades before retirement. Does anyone have any thoughts on what allocation, if any, one should give to smaller cap growth companies?

Good questions.

Since time is an important factor in compounding, particularly when one is reinvesting dividends, it could be argued that younger folks who are looking to replace income once they stop working should focus on dividend growth companies and the income that those positions will generate.

On the other hand......

If I was going to put some money into small-cap growth companies, I would find the best mutual funds in that style and sector and invest in them. I did that in my 401k equivalent plan with about 15% of my monthly contributions. Now that I have rolled that into my IRA, it is all in dividend stocks. Those include some mid-cap, but are mostly large cap companies.

I am sure that most financial advisors, all of whom have been trained in Modern Portfolio Theory, would agree with you. That is one of the reasons I am a Self Directed Investor.

[NilesMike]

(01-02-2014, 11:07 AM)hendi_alex Wrote: I wonder what relationship, if any, exists between dividend growth and total returns? It could be that a portfolio that is structured purely toward dividend growth is one that is structured toward chronic under performance. After all, higher dividend payouts are usually a trait of more mature, slower growing companies which can't find more productive use of the cash. On the other hand, smaller cap companies tend to be faster growing and can deploy all of their cash into organic growth that turns out to be the best use of that cash, better both for the company and for the share holder.

I'm a big believer in dividend stocks, but think that getting 100% focused on a DG type portfolio could be counter productive to one's wealth, especially for those with decades before retirement. Does anyone have any thoughts on what allocation, if any, one should give to smaller cap growth companies?

It is simply much easier to identify the quality dividend growers. To find a "high flyer" is a lot trickier.

Underperformance is relative. Compared to the total market the GD would outperform. Compared to a few high flyers or a fund that hit a couple of home runs, DG would underperform.

[cannew]

(01-02-2014, 11:07 AM)hendi_alex Wrote: I wonder what relationship, if any, exists between dividend growth and total returns? It could be that a portfolio that is structured purely toward dividend growth is one that is structured toward chronic under performance. After all, higher dividend payouts are usually a trait of more mature, slower growing companies which can't find more productive use of the cash. On the other hand, smaller cap companies tend to be faster growing and can deploy all of their cash into organic growth that turns out to be the best use of that cash, better both for the company and for the share holder.

I'm a big believer in dividend stocks, but think that getting 100% focused on a DG type portfolio could be counter productive to one's wealth, especially for those with decades before retirement. Does anyone have any thoughts on what allocation, if any, one should give to smaller cap growth companies?

There is no one Investing style which will work for everyone it really depends upon your goals, timeframe, interests, personality, and many other factors. Look at the results mentioned in an article by The Passive Income site:

"Money Sense ran a column where readers could submit their TFSA value. Since everyone plays under the same rule, it can be interesting to see how you do compared with others Here are the results in summary – with $25,500 many were able to invest well on their own. (See article here)

$300,000
$72,212
$61,700
$60,500
$50,876
$48,300
$46,350
…
$41,645 <– That’s me. I am definitely not number 9 but I think I have done pretty good."

My results were less than the top 9, but my YOC (or total investment) has grown to 5.25% and is still growing. I'm interested in the Income generated, not the size of the pot.

Certainly, by investing in riskier stocks or a great growth stock one may show fantastic results, in the short term. Would the results continue in the long term is questionable.

For me slow and steady dividend growth is good enough, for others allocating a portion to DG and investing some in Growth stocks, small cap stocks, IPO's, or other strategies my work for them.

Life would be boring if we all invested the same way.