Thursday, December 29, 2011


Summary 2011 Dividend Machines

Dividend Machine is the name I give a stock that meets four basic criteria.  During the past year, I profiled fifty two stocks, one per week.  Each stock profiled met all four criteria at the time I wrote about the company.

This group of fifty two stocks is my 2011 DIVIDEND MACHINE PORTFOLIO.   In this post, I provide a review of the 2011 Dividend Machine Portfolio.   In the future, I will follow this portfolio and periodically report on the performance.

Four Dividend Machine Criteria:

  1. Pay at least a three percent dividend
  2. Earn more than the dividend payout
  3. Increased the dividend every year for at least five years
  4. Debt to equity (D/E ratio) 1 or less or not greater than the industry average

Characteristics of the fifty two 2011 Dividend Machines:

This theoretical portfolio is based on buying 100 shares each of fifty two stocks.  I selected one stock per week that met all four criteria without regard to any other factor such as price earnings ratio, recent news, or need for diversification.  You can see a list of these stocks and review the post describing them by clicking on the 2011 portfolio page at the top of this blog.

  1. Amount invested = $207,118
  2. Price range = $9.27 - $93.37
  3. Average Dividend yield = 4%
  4. Average payout ratio (dividend/earnings) = $52.49%

Industry Diversification:

Although I did not try to create a portfolio with industry diversification in mind, I was surprised to find the degree of diversification this selection technique created.

  •     Nine Utilities
  •     Six Processed & Packaged Goods including Personal Products
  •     Five Electronics
  •     Four Oil, gas or chemicals
  •     Four Machinery & Manufacturing
  •     Four Financials – banks, asset management, insurers
  •     Three Telecommunications
  •     Three Medical instrumentation & supplies
  •     Three Aerospace
  •     Two Pharmaceuticals
  •     Two Waste Management
  •     Seven Other individual industries

Diversification by Market Capitalization:

Similarly, I did not try to select these stocks based on small cap. or big cap.  and again, I was surprised by the level of diversification this technique produced.

  •      Thirteen small cap. companies (up to 2 billion)
  •          Sixteen mid cap. companies (2-10 billion)
  •      Sixteen large cap. companies (10-100 billion)
  •      Seven mega cap. companies (greater than 200 billion)

Performance and other events:

Using closing prices on 12/23/2011, the 2011 dividend machine portfolio posted a $16,676 gain for an 8.05% gain.  The portfolio earns $15,819; these stocks pay out $8,300 in dividends based on the most recent quarterly dividend.  Other events are provided below.

  • Five stocks no longer qualify as a dividend machine because they used special dividends to create increased dividends instead of providing a steady annual increase. 
  • Twenty nine companies have already increased their dividend
  •  Eleven companies will have to increase their next quarter dividend or they will violate the requirement of increasing every year.
  • Two companies no longer pay a 3 percent dividend yield due to price appreciation:  Travelers (TRV) and Harleysville Group (HGIC)
  •  Three companies no longer qualify because their D/E ratio is greater than one or greater than the industry standard.  Lockheed Martin (LMT) D/E 2.39, General Mills (GIS) and Hasbro (HAS).  The remaining 49 companies have acceptable D/E ratios.

I will keep this portfolio intact and follow its performance for as long as I write this blog.  My preliminary opinion is that using these four criteria to select a portfolio of dividend stocks is an easy way to build a diversified income portfolio of dividend stocks.


Tuesday, December 27, 2011

2011 Dividend Machine and CAPITAL PRESERVATION

2011 Dividend Machine – Capital Preservation
            Do income investors have to sacrifice capital preservation for income?  I will answer this question by looking at our fifty two, 2011 Dividend Machine companies in terms of their stock price. 

Tuesday, December 20, 2011

Chevron and Darden call income

          Darden restaurants (DRI) was profiled at a stock price of $47.36.  Today, DRI is trading around $43.92 which is a about a 7.25 percent discount.  I want to add more of this Dividend Machine and I always like a sale.  However, since my goal is income, I will sell covered calls on my new shares; let's analyze how

Monday, December 19, 2011


Market Capitalization
            My 2011 Dividend Machine project is just about completed.  You already know that portfolio diversification is very important and that diversification within your dividend income portfolio is also important.   

Monday, December 12, 2011


            I continue to analyze the portfolio of dividend stocks that I call Dividend Machines; today I look at diversification.

            If any rule exists that is of equal importance to “always invest in something that makes money”, it is never put all your eggs in one basket.   Diversification is important in any portfolio but it is particularly important for income investors.   You see, except for the much disciplined young person who uses income investing to create wealth, the people who invest to use the income for everyday expenses have little room for

Saturday, December 10, 2011

Dividend Increase + Special Dividend Income

          2011 Dividend Machine National Health Investors (NHI) has announced a quarterly dividend increase from $.615 to $.65. At Friday's closing price of $43.71 the annual dividend yield is 5.95%.  Moreover, NHI will pay a special dividend of $.22.   Nice income investing.

Very Truly Yours,

Tuesday, December 6, 2011

What to do with Darden Restaurants (DRI)

It is hard to do, but income investors have to insulate themselves from price fluctuations, otherwise you should not invest in stocks to create income.   If you bought Darden Restaurants (DRI) when it was profiled, you cannot help but be unhappy that the stock price is down about 10%.  What should an income investor do?

I bought DRI when I profiled it so I had to  make a decision about my position.   I like the dividend pattern DRI dividend history.  While the news is that DRI will have slower EPS (earnings per share) than previously expected, I still like four percent growth of earnings.   Therefore, I am going to add to my position.

Very Truly Yours,


Sunday, December 4, 2011


English: Diagram illustrating the relationship...Image via Wikipedia
            This is the fourth of six analyses I have made of the fifty two companies that make up our 2011 Dividend Machines.   First we determined if we met our goal of selecting companies that paid at least a three percent dividend (see post .)  Our next analysis tested our success at picking companies that not only paid at least a three percent dividend but also provided annual dividend increases (see post.)  The third criteria for a company to be considered a Dividend Machine is earnings that are greater than the amount paid in dividends and we analyzed their EPS (see post.)  The final hurdle each company had to meet is a debt to equity ratio of 1 or less or equal to the industry standard.  This post will concentrate on D/E ratio analysis.