One Awesome Year of Dividend Growth Investing in Public

One year ago, on Dec. 4, 2012, the real-money Inflation-Protected Income Growth portfolio launched. The portfolio attempts to generate an income stream that increases each year at least as fast as inflation. It strives to reach this goal by owning a fairly diversified collection of stocks that all share a handful of key characteristics:

  • Reasonable valuations, based on some level of financial fundamentals,
  • Histories of paying increasing dividends that were covered by cash flows,
  • Reasons to believe those dividends could continue to increase, and
  • Healthy enough balance sheets that maturing debts wouldn't cause much worries

In the Foolish spirit of Learning Together, the portfolio is managed in public, with selection articles announcing each pick and weekly updates (once the portfolio got going) monitoring its progress. Over its first year of existence, the portfolio exceeded my wildest expectations, and I'm optimistic that the portfolio can continue to meet its primary objective.

How'd it do?
From the portfolio's primary goal of investing in companies with rising dividends thus far, it has been a stupendous success. The table below shows all but one iPIG selection and its dividend behavior since being picked:

Company Name

Recommendation Article

Quarterly Dividend When Picked

Current Quarterly Dividend

Percentage Change

United Technologies (NYSE: UTX  )

Click Here

$0.5350

$0.5900

10.3%

Teva Pharmaceutical (NYSE: TEVA  )

Click Here

$0.2585

$0.3260

26.1%

J.M. Smucker (NYSE: SJM  )

Click Here

$0.5200

$0.5800

11.5%

Genuine Parts

Click Here

$0.4950

$0.5375

8.6%

Mine Safety Appliances (NYSE: MSA  )

Click Here

$0.2800

$0.3000

7.1%

Microsoft

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$0.2300

$0.2800

21.7%

Hasbro (NASDAQ: HAS  )

Click Here

$0.3600

$0.4000

11.1%

NV Energy (NYSE: NVE  )

Click Here

$0.1700

$0.1900

11.8%

United Parcel Service 

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$0.5700

$0.6200

8.8%

Walgreen (NYSE: WAG  )

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$0.2750

$0.3150

14.5%

Texas Instruments (NASDAQ: TXN  )

Click Here

$0.2100

$0.3000

42.9%

Union Pacific (NYSE: UNP  )

Click Here

$0.6900

$0.7900

14.5%

CSX (NYSE: CSX  )

Click Here

$0.1400

$0.1500

7.1%

McDonald's (NYSE: MCD  )

Click Here

$0.7700

$0.8100

5.2%

Becton, Dickinson (NYSE: BDX  )

Click Here

$0.4950

$0.5450

10.1%

AFLAC 

Click Here

$0.3500

$0.3700

5.7%

Air Products & Chemicals (NYSE: APD  )

Click Here

$0.6400

$0.7100

10.9%

Raytheon (NYSE: RTN  )

Click Here

$0.5000

$0.5500

10%

Emerson Electric (NYSE: EMR  )

Click Here

$0.4100

$0.4300

4.9%

Wells Fargo & Co.  (NYSE: WFC  )

Click Here

$0.3000

$0.3000

0%

Can't Mention

Can't Mention

Can't Mention

Can't Mention

Can't Mention

Data from Yahoo! Finance and the iPIG portfolio selection articles, as of Dec. 4, 2013.

Every selection but megabank Wells Fargo has increased its dividend by more than the official 1% inflation rate since being picked for the portfolio. Wells Fargo did increase its dividend shortly before being selected, though, and its ability to recover its dividend after the financial crisis faster than many other banks played a key part in its getting picked. As Wells Fargo has increased its dividend within the past year, any additional dividend increase would have been an unexpected bonus.

Texas Instruments provided the biggest surprise from a dividend perspective. The semiconductor giant has raised its dividend twice since being picked in January, for a total increase of nearly 43%. Texas Instruments' dividend increases came in spite of some downbeat forecasts driven by the wind-down of its wireless business. Texas Instruments has been making choices to focus on higher-margin businesses, and investors are seeing the benefits in the form of those higher dividends.

As for the "can't mention" stock -- the Fool's disclosure rules prohibit me from mentioning a company within two days of transacting in its security, which I did in my wife's IRA on Dec. 4, 2013. That company will be covered in the upcoming weekly review article, after the disclosure rules allow.

Beyond the dividends
In addition to that awesome dividend growth, the iPIG portfolio benefited from the market's rapid rise over the past year. All told, as of the market's close on Dec. 4, 2013, the iPIG portfolio achieved a 28% total return. That's slightly ahead of the gain in the S&P 500 over that same time, but below the index's return when dividends are included. Over the past year, what started as $30,000 has turned into $38,409.89 thanks to a combination of dividends and a rising market.

Including Teva Pharmaceutical's December dividend, which was expected to arrive this Tuesday, the iPIG portfolio would have had another $10 or so in its account above that total level. As an Israeli company, though, Teva's dividend has to go through ADR transfer agents, currency translations, and a mandatory Israeli withholding tax before getting passed on to American shareholders. As a result, Teva's dividend often shows up a bit later than expected. It hasn't arrived as of this writing, but I expect to see it soon.

Looking forward
While dividends are never guaranteed payments and capital gains often come and go at the whim of the market, the companies in the iPIG portfolio get regularly reviewed to determine whether they still fit. Thus far, there hasn't been a compelling need to sell any existing pick.

That won't last forever, and in fact there is one virtually guaranteed sale for the iPIG portfolio in the near future. NV Energy (NYSE: NVE  ) , Nevada's regulated electricity producer, is in the process of getting bought out for $23.75 per share in cash, with the deal expected to close in the first quarter of 2014.

As the iPIG portfolio picked up its shares in NV Energy on Dec. 31, 2012, waiting until January 2014 to sell will let the position be eligible for long-term capital gains tax treatment. Since NV Energy's shareholders have already approved the sale, it's a simple choice to wait a few weeks to get the lower long-term gains tax rate on what at this point is a virtually guaranteed gain.

When NV Energy's shares get sold, that will free up enough capital to place another company's stock in the portfolio. The market's rapid rise over the past year has made great fits for the iPIG portfolio's criteria tougher to find, but it likely won't take too long for something worth owning to come along.

The power of dividends in action
As the iPIG portfolio's real world returns have shown, dividends provide income today with the possibility of an even higher income in the future. Add the potential for capital gains to the mix and it starts getting easy to see how dividend stocks can make you rich.

In addition, while they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

To follow the IPIG portfolio as buy and sell decisions are made, watch Chuck's article feed by clicking here. To join The Motley Fool's free discussion board dedicated to the IPIG portfolio, simply click here.


Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 06, 2013, at 6:41 AM, wandern16 wrote:

    Chuck,

    Thanks so much for posting regularly about the aims of your portfolio, how it is doing, how you value the stocks and when and why you consider one over-valued and possibly a candidate to sell. I've learned a lot from your board this past year and you have changed my investing approach. Congrats on your fine return this year!!!

  • Report this Comment On December 06, 2013, at 7:58 PM, TMFBigFrog wrote:

    Thank you, wandern16,

    I wish you continued success in your investing journey, and I'm looking forward to continuing to manage the iPIG portfolio. It has been a lot of fun, and a very educational experience for me (and I hope for you and other readers, too).

    -Chuck

    Inside Value Home Fool

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