Is This the Start of Something Big?

Last week, the Inflation-Protected Income Growth portfolio received its first dividend payment, $9.87 worth of dividends on 47 shares of Texas Instruments (NASDAQ: TXN  ) stock. As that real-money portfolio has been designed around owning companies that pay dividends and have decent track records of raising them, this could be the start of something big.

Why all the fuss about $10?
Granted, one dividend payment on one stock is nothing to write home about, but that dividend payment of $0.21 per share represented the second payment at that level from Texas Instruments. Prior to its most recent increase, its dividend was $0.17 per share per quarter. If Texas Instruments holds true to form, after two more dividend payments, we could see another increase.

Or in other words, when that one stock is part of a diversified portfolio where the common thread across all the picks is their dividend history and dividend growth potential, it's the first real-cash indication of how the strategy works. Indeed, looking at the stocks currently in the portfolio, there's already reason to believe that the 2013 income will be higher than what it would have been had the portfolio owned the stocks in 2012: 

Company

Shares

2012 Dividends Per Share

Anticipated 2013 Dividends Per share

"Would Have Been" 2012 Dividend Income

Anticipated 2013 Dividend Income

United Technologies

18

$2.03

$2.14

$36.54

$38.52

Teva Pharmaceuticals*

38

$0.83

$0.95

$31.43

$36.15

JM Smucker

17

$2.00

$2.08

$34.00

$35.36

Genuine Parts

23

$1.98

$2.15

$45.54

$49.45

Mine Safety Appliances

36

$1.10

$1.12

$39.60

$40.32

Microsoft

55

$0.83

$0.92

$45.65

$50.60

Hasbro**

43

$1.74

$1.20

$74.82

$51.60

NV Energy

84

$0.64

$0.68

$53.76

$57.12

United Parcel Service

20

$2.28

$2.48

$45.60

$49.60

Walgreen

40

$1.00

$1.10

$40.00

$44.00

Texas Instruments

47

$0.72

$0.84

$33.84

$39.48

Union Pacific

6

$2.49

$2.76

$14.94

$16.56

CSX

34

$0.54

$0.56

$18.36

$19.04

McDonald's

16

$2.87

$3.08

$45.92

$49.28

Becton, Dickinson

18

$1.85

$1.98

$33.21

$35.64

Aflac

27

$1.34

$1.40

$36.18

$37.80

Air Products & Chemicals

17

$2.56

$2.56

$43.52

$43.52

Totals

 

 

 

$672.91

$694.04

*Assumes 20% Israeli Withholding Tax

**Feb 2013 dividend pulled to 2012

Source: Yahoo! Finance, the iPIG Portfolio's brokerage account, as of Feb. 19, 2013.

The year is really just getting under way, and only a small handful of the companies in the portfolio have reached the anniversary of their last dividend increases. Still, the iPIG portfolio is already projecting a higher 2013 dividend total than it would have gotten had it held all these stocks in 2012. And the portfolio is doing that in spite of the fact that Hasbro (NASDAQ: HAS  ) pulled its February 2013 dividend into December 2012 to ward off the higher dividend taxes that were expected for this year.

Indeed, the projection already has the 2013 dividends around 3.1% higher than what the portfolio would have received if it had owned the stocks in 2012. Given that the most recent Consumer Price Index pegged inflation at 1.7% over the past year, that bodes well for the portfolio's objective of increasing dividend income in line with or ahead of inflation.

Additionally, the portfolio already has a projected dividend yield around 2.3% on its starting value, in spite of still having around 20% of that value in cash. That's higher than the current yield on 10-year Treasury bonds. Put a yield that's higher than "safe" bonds together with a faster-than-inflation income growth rate and sprinkle in some diversification for protection, and you have the foundation of a very solid portfolio built for the long haul.

Where's that growth coming from?
In that chart above, most of the companies' dividends were based on projecting their most recent quarterly dividends forward with no changes. A handful of them, however, have increased their dividends since being picked by the iPIG portfolio:

  • Hasbro was selected for the iPIG portfolio on Dec. 24, 2012. On Feb. 7, 2013, it raised its quarterly dividend to $0.40 a share. Granted, its projected total 2013 dividend is down from last year, but that's a reflection that it will likely only be paying three dividends this year due to last year's accelerated payment, rather than a problem with its ability to cover its dividends.
  • Teva Pharmaceuticals (NYSE: TEVA  )  became an iPIG pick on Dec. 7, 2012. Like Hasbro, it too raised its quarterly dividend on Feb. 7, 2013. As an Israeli company, its dividend is denominated in shekels, and American investors receive a dividend that's subject to both an Israeli withholding tax and currency fluctuations. Still, Teva's 15% increase to 1.15 shekels certainly is appreciated.
  • United Parcel Service (NYSE: UPS  )  was ordered up for the iPIG portfolio on Dec. 27, 2012. Its dividend increase arrived just in time for Valentine's Day 2013. The raise to $0.62 per share per quarter shows that UPS loves its shareholders just about as much as it loves logistics.
  • Genuine Parts Company (NYSE: GPC  )  drove its way into the iPIG portfolio's sights on Dec. 17, 2013. Just yesterday, it boosted its payment to $0.5375 per share per quarter. That marks 57 consecutive years of increases for the company, making it one of the longest tenured dividend-growth companies around. With a track record that long, not raising the dividend would have been more of a surprise.

Dividends are both sources of income and signals of what the future may bring for a company. By leveraging both aspects of companies' dividends, an investor can build a portfolio that stands the test of time while maintaining or growing that investor's purchasing power. And that is something with the potential to be very big, indeed.

If you're looking for some long-term dividend-focused investing ideas, check out the Fool's special report: "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so just click here and get your copy today.


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  • Report this Comment On February 25, 2013, at 10:56 PM, DividendsBoom wrote:

    cool portfolio, i enjoy reading about and tracking these types of portfolios as they fall in line with my core competency in investing. Interesting to see what you buy with the rest of your money as you are running out of sectors to diversify too. The portfolio looks concentrated to the USA, but certainly not overly concentrated.

    Looks like PM, BBL, RDS, VOD, and NGG would round out your portfolio well without too much overlap (if I had to fill in the rest today).

    I look forward to seeing what you purchase to add to your portfolio.

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