When I started writing about dividends and income, I wanted to be able to measure the results of my dividend machine strategy.
To make this easier, I created a portfolio of dividend stocks by selecting one stock per week for fifty two weeks. I used only the four dividend machine criteria noted here to pick the stocks.
The portfolio is long only and I do no trading; I only hold these stocks. You can see this portfolio by clicking on the 2011 DIVIDEND PORTFOLIO page at the top of this blog. .
Diversification?
I was curious to find out how well diversified a
portfolio would evolve from implementing this strategy. Would I end up with only big pharma. or
utilities?
The portfolio is not only big pharma or utilities. I ended up with a well diversified portfolio
by industry as well as by market capitalization.
Today, I am looking at how the
small capitalization stocks performed.
I define small capitalization stocks as those with a capitalization of less
than one billion dollars.
Eight
Small Caps Stocks from 2011.
Two small caps, Harleysville Group (HGIC) and
Met-Pro (MPR) were bought out. HGIC was
bought by Nationwide Insurance and produced a 91.88% gain in just four
months. The proceeds are included in
the portfolio value. MPR was bought
by CECO Company and produced a 48.32% gain in twenty two months. Proceeds from that sale are included in the
portfolio value.
Six other small cap stocks remain part of the 2011
DIVIDEND PORTFOLIO. They are: YORW, WHG, UTMD, MGRC, LDR, and ESP.
Do
they currently meet all four criteria to qualify as Dividend Machines?
The tables below present the dividend fundamentals
of these six stocks.
Landauer (LDR) is
the only stock of concern. It has
increased debt and lower earnings.
While LDR continues to pay a healthy dividend, they have not increased
the dividend for a while and that makes sense as LDR has negative
earnings. I do not buy or sell in
this portfolio, but if I owned the stock, I would sell it for a tiny gain of
3.94%. LDR is not exactly a total
failure but it no longer qualifies as a dividend machine.
YORW, MGRC, and UTMD have significant price
appreciation. While the dividend has
consistently increased for each company, the yield is less than three percent
and therefore, I would not buy them now.
However, as you can see they are quality, small cap. companies.
WHG and ESP also have price appreciation but are
dividend machines on every measure and I would consider adding to my position.
What
does it mean for the ordinary investor?
As you save for retirement and begin to develop your
own dividends and income portfolio, you have to decide how to invest. This analysis illustrates that you do not
have to have millions of dollars to invest to create a successful dividend
portfolio. You do not have to invest
$10,000 or more every time you buy 100 shares of a stock. You can find small cap stocks that perform
well if you use a disciplined approach.
Even if it is not my approach, a disciplined investment strategy is the
best way to attain your dividend and income goals; otherwise, you are throwing darts at the
market hoping to catch a company that will meet your income needs when you
retire.
The
Money Madam
