Dividend Growth Index Update – Q3 2012

As some of you may remember, I was picked to be part of a Dividend Growth Index back in September of 2011. I joined a number of well-known and respected dividend bloggers, where we formed an index of high-quality dividend stocks that we all decided we would keep track of over the long-term. It’s an exercise determined to show the power of dividend investing over the long haul.

This index was created by The Dividend Guy and asked a number of us fellow bloggers to join in on the fun. I was more than happy to oblige.

We have been collectively updating our readers every quarter on the overall status of the index, with each one us specifically discussing our individual picks for the index. We each chose three stocks, and with eight people involved the index tracks 24 individual equities.

It’s been one year since the index was started, so we’re able to track 1-year performance, as well as YTD performance. The index has largely kept up with the major indexes over the last year, but has largely underperformed YTD. I believe this is because there has been a slight rotation out of some of the popular stocks in the dividend growth index due to valuation concerns. Also, if you’re only comparing our index to the S&P 500, it wouldn’t quite compare fairly due to the large number of Canadian stocks in the index (due to the number of Canadian bloggers involved). U.S. stocks have been on a tear in 2012, burning past the major Canadian indexes.

I’m going to remind everyone of my picks below, and their performance in the index thus far. I picked my three stocks based on solid fundamentals of the underlying companies, strong cash flows, durable competitive advantages, attractive valuations and most important: solid dividends that are growing at a pace that exceeds inflation.

Philip Morris International (PM)

I’m a guy with conviction and passion. I picked stocks that I personally believe in and I always “put up or shut up”. PM is my largest position in my own personal portfolio, The Freedom Fund, and for good reason. I think this is a long-term winner with the #1 or #2 market share in almost every market outside the U.S. And China. Just imagine if this company ever does get a foothold in China! Look out. This company is very shareholder friendly with a huge stock buyback program, large dividend payout and management commitment to grow the annual dividend payout.

1-year performance: 49.6%   YTD performance: 17.4%

ConocoPhillips (COP) 

Another conviction play for me. Another stock I personally own and believe in the for the long-term. COP has a huge yield of 4.58% and recently completed a valuable spin-off of its downstream assets as part of the new entity Philips 66 (PSX). It really comes down to whether or not you believe the world is still going to need oil 10 years from now and whether or not you think there is going to be a greater need for it than there is today and less of it to go around.

1-year performance: 21.6%   YTD performance: 2.8%

The Procter & Gamble Company (PG)

Geez, there appears to be some people that just don’t like PG these days. Who can blame them? Management missteps, pricing issues and a highly competitive landscape has spelled problems for PG over the last decade. But, I think that this company is too high quality to be held down for long. They have a worldwide presence with quality brand names and economic scale that is second to none. Let’s not forget they have raised dividends for 56 years. Yes, that’s over half a century of continuously rewarding shareholders with yearly raises. Try getting that from your employer.

1-year performance: 13.5%   YTD performance: 6.4%

So, those are my picks. I’m confident in them for the long-term and that’s why I personally have invested money in them. You can’t say much more than that. It should be kept in mind that this is a very short time frame to compare a list of stocks against an index. Every time I initiate a position in a company I plan on holding forever. Unless there is a major change in company fundamentals, a dividend cut or held static or something else drastic I’ll continue to hold on and collect a piece of the profit pie. Mmm, profits.

Comparing the Dividend Growth Index to the major indexes looks like this:

Dividend Growth Index: 1-year performance: 22.2%   YTD performance: 5.7%

SPY: 1-year performance: 29.93%   YTD performance: 16.43%

XIU (Canada): 1-year performance: 8.68%   YTD performance: 5.39%

You can read about the other bloggers picks and their thoughts here:

Dividend Monk
The Dividend Guy
My Own Advisor
The Dividend Ninja
The Passive Income Earner
Susan Brunner
Dividend Growth Investor

Note: 1-year performance numbers used above are since inception of the DGI (Sept. 30th, 2011).

Full Disclosure: I’m long PM, COP, PG

Thanks for reading.

Edit: Corrected PG’s dividend streak description.

Comments

  1. says

    Hmm PG concerns me a little bit. Not enough to sell my position, but I wouldn’t be looking to buy any at the moment. I think long term they’ll be fine, but they might need to change their leadership or strategy.

    Did you include PSX in the COP calculations? PSX has actually performed better.

    • says

      Compounding Income,

      PG has had a rough time the last couple years. No doubt about that. But, if you believe in the long-term strength of their brands amid worldwide exposure, along with the recent cost-cutting moves, then holding is definitely a good idea here. It’s not a particularly cheap stock here, and that’s why I haven’t added to my shares in a while. If it comes back down to the mid-$60′s, or growth lowers the P/E ratio, then I would buy again.

      I’m not sure about your second question. Mike and his business partner for TFB and other financial sites have been keeping track of all the numbers. I’ll try to double check that.

      Best wishes!

  2. says

    Russel Kinnel, director of fund research at investment researcher Morningstar Inc., said, “Cheap is another angle on risk, and right now the yields are better in the foreign dividend-paying stocks than in the domestics. If you can get much more generous yields overseas — and you are an investor who is determined to get some income — it makes sense to look there, provided you can find the values amid the risks and get past the obvious cautions.”

    Indian dividend

  3. Anonymous says

    Speaking of 56 years in the context of PG, you probably meant to say it’s more than half a century, not a decade.
    Just a typo, perhaps.

  4. says

    Great stuff here. The information and the detail were just perfect. I think that your perspective is deep, its just well thought out and really fantastic to see someone who knows how to put these thoughts down so well. Great job on this.

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