In late 2010 I started
writing about investing for income. My
work concentrated on dividend paying companies.
Some of the companies that pay dividends were so reliable; I started
calling them Dividend Machines. I picked one dividend machine per week. This portfolio of 52 stocks is my 2011
dividend machine portfolio. In this
post I review the goals I hoped to achieve by investing in these 52
stocks and how well I did.
GOALS
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Income greater than 10 yr. US Treasury
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Income increases every year
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Capital preservation
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Diversification
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My goals were to create a portfolio that produced more
income than I could get from investing in 10 year U.S. Treasury bonds. I also wanted my income to increase every
year. Capital preservation was another
important goal and finally, I hoped to create a well diversified portfolio.
Income:
This 2011 portfolio of dividend machines beat the
income from a 10 year US Treasury in every way.
In 2013 this 2011 dividend machine portfolio will provide about $8,550
in dividends.(note1)
Based on the amount invested (207,107) that is a
yield of over 4%. However, based on the
current value of the portfolio (267,412)(note2) the yield is around
3.19%. Since we took more risk by
investing in stocks, double the income from a US Treasury is very acceptable.
In addition, three companies paid extra dividends. Espey Manufacturing, symbol ESP, a micro-cap
Company, paid an extra $1.00 per share each of the two years it was included in
this portfolio. National Health
Investors, symbol NHI, paid an extra $.22 per share each year and Watsco,
symbol WSO, paid a mighty two years of dividends early at $5.00 per share. Watsco
then cut their 2013 dividend to $.25 per share from $.50 per share.
Income Increases:
Forty eight of the fifty two companies in the 2011
dividend machine list increased the dividend as expected. Landauer, symbol LDR, Consolidated Edison,
symbol ED, and Pitney Bowes, symbol PBI, kept their dividend the same for more
than 4 quarters.
Capital Preservation:
The amount of money invested by buying 100 shares of
each of the 52 companies was $207,107.
As of March 11, 2013 the portfolio equaled $267,412.
Invested capital was not only preserved; it increased by about $60,000
for a gain of 29.11%. This capital gain
was more than I had hoped for.
Diversification:
When I picked these stocks, I used only my four
criteria. The four criteria were: three percent minimum dividend yield, earnings greater than dividend, dividend increases every year for at least five years, and debt to equity ratio of 1 or less or equal to industry standards. I did not try to build a
portfolio based on industry, or on size, or on current trends. I was very interested to see how this
portfolio would develop in terms of diversification.
Distribution by Industry:
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9 Utilities
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8 Electronics including telecom
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7 Machinery & Manufacturing including Aerospace
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6 Processes & Packaged Goods including Personal Products
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5 Healthcare, including Pharma , Instruments and supplies
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4 Oil and gas companies
4 Financials
2 Waste Management
7 Other individual industries
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Distribution by Capitalization:
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13 small cap (up to 2 billion)
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16 mid cap (2 to 10 billion)
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16 large cap (10 - 200 billion)
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7 mega cap (greater than
200 billion)
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Summary:
Using the four dividend machine picking criteria with
discipline provided a structured approach to dividend income investing. This 2011 portfolio of 52 stocks met all my
goals. I will continue to use this
approach and will periodically report on the success or failure of the project.
If you click on the 2011 Dividend Machine Page to
the right, you can review each stock pick in detail. Some companies no longer meet all four
dividend criteria. Some yield less than
the 3% dividend yield minimum mostly due to increases in stock price or spin offs. Three companies, as noted above did not
increase the dividend as expected. Two
companies (Lockheed Martin, LMT and Pitney Bowes, PBI) took on more debt and
today would not qualify on those grounds.
However, if you bought the entire portfolio, I think
you would be very happy with the results.
TheMoneyMadam
(note1) Dividend income is annualized based on the
most recently declared quarterly dividend of each company.
(note2) Valuation uses the intraday stock prices on
March 11, 2013 as provided by MSN Money.
