Sacreligum Dividendum

[Robandcindy2]

Sorry...couldn't resist....

But am I being sacrilegious to our DGI faith?

There have been several articles floating about debating the fallout from a Fed interest rate hike. The closest to home being "folks bailing from dividend stocks in pursuit of safer vehicles..."

Of late there have also been a few in the DGI fold discussing....gasp....Growth plays...(egads Rob! Bite your tongue!)

In truth I have always been fond of a little growth. Don't we in fact try to have our cake and eat it too with quality "dividend growth" stocks? We're just adding the criteria of dividend growth. Many of us would not cherish stocks that lost a great deal of value even if their dividends increased regularly.

Ages ago Chuck Carnevale had suggested that up to a 10% pure growth investment was acceptable to the DGI'er.

In our situation I am slowly believing that we are getting close to having enough income...I think. It's still a philosophical shift in progress. This has led me to consider bumping up our pure growth component to almost 20% of our portfolio. Many of these companies actually pay dividends below 1.5% so they are in reality "both, and" stocks (GILD for example). In fact roughly one third of the Dividend Champion, Contender, Challenger list yields less that 2.0% (which doesn't make them growth stocks by any means).

Currently I'm listening to these pundits and their talk of folks deserting dividend stocks and thinking that I might cushion any price blows with some healthy appreciation. And as some of my pseudo growth companies are exhibiting dividend growth, albeit at currently low yields, I don't think I'm really shooting myself in the foot.

So have I lost my way? Any of you spicing things up with growth? What criteria do you consider when selecting a pure growth play?

I still come back to this chart(this version from Dreyfus) and think I should stick with what works:


  Untitled.pdf (Size: 93.5 KB / Downloads: 9)

Cheers!

Rob

[hendi_alex]

IMO DG investing and total return investing are not incompatible.

[800peace]

In a case of rising interest rates, high current dividend yield companies will most likely suffer capital losses. High current dividend yield companies are not necessarily what I as a dividend growth investor look for. I'm more concerned with where the potential dividend increases could lead me in 10-20 years.

It is fair to ask current yield be a minimum according to a relevant benchmark. A relevant benchmark could be the yield-to-maturity of the 10-yr T-Note, or the average dividend yield on the S&P 500.

Because the current yields on the companies I own tend to be just over my benchmark, which is not high yield, they're less sensitive to an interest rate move than a high yielder.

Pure growth play? My core competency as a CPA is financial statement analysis. I like researching micro cap and small cap companies that are not followed. The reason I like little information, is because the less information on the company, the more likely it is to be mis-priced. My skills give me great insight as to the economic value of a business, and allow me to accomplish alpha with small caps.

I don't recommend people try to do this themselves. In fact, I'm not a DIYer when it comes to investments. It would take years of studying accounting and finance, experience with hundreds of companies, and thousands of market experiments to understand what I do. I'm not being pretentious, that is just the truth.

[cannew]

If one has time on their side than low yield, high growth stocks may be a consideration. But I think trying to keep up with changing times (rising interest rates) and trying to adjust your portfolio to meet those changes can be a detriment.

If you've found solid companies that pay & grow their dividend, than stick with them. They will adjust to the economy and other things that come up as they have in the past.