Friday, January 22, 2016

Dividend Investing Strategy re-evaluation - Updated 1/28/2016

As January goes, so goes the rest of the year. This is the lament you will hear day after day as we slog through 2016.  This kind of talk makes investors reevaluate their strategy.  My strategy is to create steady and increasing cash flow from dividend stocks.  Should I change my strategy?  

Since I retired as an investment advisor and started writing about the dividend stocks I use to create income that grows, I found some 100 stocks that met my criteria.  I believe in a structured, disciplined approach to stock picking as I believe that reduces the emotional influences that all investors feel, especially during rough times like right now.

Should I revise my strategy?  The only way to know if a strategy revision is needed is to look at how this group of stocks is doing.   

Dividend Cuts and Dividend Increases

Using the rule of 90 and 10, I would be happy if 90% of the stocks I picked were solid enough that even during a downturn, they did not have to cut my income to stay solvent.  I would be doubly happy if at least 90% of these stocks continued to increase my income.  

I looked at dividend suspensions, dividend reductions, and dividend growth in the 5 annual portfolios I have created to date.  See the table below.

Note that not one stock in this group suspended dividends however, two stocks did cut the dividend by half.  Currency issues affected one stock so technically three out of the 100 stocks picked suffered dividend cuts.   Three out of 100 is a very good.  In fact, 90% of the stocks have delivered dividend increases.  

1/28/2016 update:  Potash, symbol POT, will pay the regular dividend in February, but their May payment (ex dividend 4/8/2016) will be cut to $.25.  M* 

Capital Gains and Losses

No normal person can totally ignore the value of their invested dollar.  The current market has been cruel to investors who chased yield and since they were competing with other investors who were also chasing yield, bought good stocks at values well above where they are now.

My 100 stocks have mixed results.  The best returns come from the stocks bought in 2011 and the worst result comes from the stocks bought in 2015.  Buy low is good advice but sometimes that is not always possible and you suffer from buying higher than your current basis.

See the table below for a review of the capital gains and losses of five portfolios.

The 2015 portfolio does not have one stock worth more than the basis.  Yet, even this group of stocks is already delivering some dividend increases.   2015 Portfolio holdings and their dividend increases are displayed below.

In summary, I am not going to change my strategy.  I still need to invest for income and for income growth and there are few available investments that are as reliable as these 100 or so stocks.  I may need a therapist to help me through the market turmoil of 2016 but I believe, in the end it is the best strategy for me today.