The real-money Inflation-Protected Income Growth portfolio attempts to generate an income stream that grows over time at least as fast as inflation. It strives for that goal by buying shares in companies with track records of increasing their dividend and which look capable of continuing to increase their dividends over time.

By owning stock, the portfolio is exposed to the overall volatility of the market and the execution risks of the companies whose shares it owns. By focusing on the cash generating (and paying) capability of those companies, however, the portfolio can take a longer term view that isn't dependent on correctly guessing daily market movements. Since last week's update, the IPIG portfolio's total value dropped by around 1.5%, but its dividends performed exactly as expected. And that makes all the difference.

Cash flow is still king
Six companies in the IPIG portfolio paid their dividends last week, and as a result, the cash balance in the portfolio leapt an impressive 10.3% on the week, to now sit at $710.75. All told, the portfolio has received $804.76 in dividends (after foreign tax withholdings) since launching in with $30,000 in December 2012. That’s cold, hard cash coming in at a rate that far exceeds the interest rates available in "safe" investments like savings accounts over that same time period.

Even better, look at the common thread weaving through every last one of those companies that paid their dividends to the IPIG portfolio over the past week: growth in their dividends.

  • Mine Safety Appliances (NYSE:MSA) paid its owners $0.30 per share in dividends on Tuesday, up from $0.28 per share in the same quarter last year. Mine Safety Appliances’ stock price has struggled in recent weeks on worries driven by its customers’ economically sensitive businesses. Even so, the business remains strong enough to generate and pay that additional cash to its owners.

  • Emerson Electric (NYSE:EMR) paid its owners $0.43 per share in dividends, also on Tuesday, up from $0.41 per share in the same quaret last year. This past week, Emerson Electric’s stock took a breather from its recent rise, but its business remains strong enough to generate and pay that additional cash to its owners.

  • United Technologies (NYSE:UTX) joined the Tuesday parade of dividend payers by handing its owners $0.59 per share, up from $0.535 per share in the same quarter last year. United Technologies is unique in that it seems to increase its dividend on an every-five-quarter schedule, rather than the annual process most IPIG selections follow. United Technologies’ stock also took a breather this past week from its strong gains over the past year, but the company continues to generate and pay cold, hard cash to its owners.

  • Walgreen (NASDAQ:WBA) handed over $0.315 per share on Thursday, up from $0.275 per share in the same quarter last year. Walgreen’s stock bucked the IPIG portfolio’s overall downtrend on the week and gained a small amount, though the dividend payment was higher than the week’s gains. 

  • Microsoft (NASDAQ:MSFT) also paid its dividend on Thursday, handing its owners $0.28 per share, up from $0.23 per share in the same quarter last year. Like many of the holdings in the IPIG portfolio, Microsoft’s shares slumped on the week, but its cash-generating (and cash-paying) ability remains strong.

  • CSX served as a fitting caboose on dividends for the IPIG portfolio on the week, handing its owners $0.15 per share on Friday, up from $0.14 per share in the same quarter last year. A Friday rally in this railroad stock kept its share price losses to a minimum on the week, but once again the company’s share price movement had no bearing on its ability to pay out that cash.

Who cares if the market is up or down?
The IPIG portfolio’s dividend orientation enables it to focus on the fundamental drivers of the businesses whose shares it owns, rather than what those shares happen to be doing in the market. When the cash keeps flowing even as stock prices fall, it gets a lot easier to stomach the market's inevitable volatility. The following table shows just how well that overall strategy is performing, in spite of the stock-price weakness this most recent week:

Company Name

Purchase Date

Total Investment (Including Commissions)

Current Value
Dec. 13, 2013

Current Yield
Dec. 13, 2013

United Technologies

Dec. 10, 2012

$1,464.82

$1,932.30

2.20%

Teva Pharmaceutical

Dec. 12, 2012

$1,519.40

$1,513.16

3.20%

J.M. Smucker

Dec. 13, 2012

$1,483.45

$1,706.97

2.31%

Genuine Parts

Dec. 21, 2012

$1,476.47

$1,865.76

2.65%

Mine Safety Appliances

Dec. 21, 2012

$1,504.96

$1,707.48

2.53%

Microsoft

Dec. 26, 2012

$1,499.15

$2,017.95

3.05%

Hasbro

Dec. 28, 2012

$1,520.60

$2,225.68

3.09%

NV Energy

Dec. 31, 2012

$1,504.72

$1,989.96

3.21%

United Parcel Service

Jan. 2, 2013

$1,524.00

$2,027.60

2.45%

Walgreen

Jan. 4, 2013

$1,501.80

$2,280.40

2.21%

Texas Instruments

Jan. 7, 2013

$1,515.70

$1,971.65

2.86%

Union Pacific

Jan. 22, 2013

$805.42

$964.50

1.97%

CSX

Jan. 22, 2013

$712.50

$937.38

2.18%

McDonald's

Jan. 24, 2013

$1,499.64

$1,511.04

3.43%

Becton, Dickinson

Jan. 31, 2013

$1,518.64

$1,898.10

2.07%

AFLAC

Feb. 5, 2013

$1,466.35

$1,780.92

2.24%

Air Products & Chemicals

Feb. 11, 2013

$1,510.99

$1,831.24

2.64%

Raytheon

Feb. 22, 2013

$1,473.91

$2,333.88

2.55%

Emerson Electric

April 3, 2013

$1,548.12

$1,853.60

2.60%

Wells Fargo & Co

May 30, 2013

$1,525.48

$1,618.01

2.74%

Kinder Morgan

June 21, 2013

$1,518.37

$1,378.86

5%

Cash

   

$710.75

 

Total Portfolio

   

$38,057.19

 

Data from the iPIG portfolio as of Dec. 13, 2013.

 
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Chuck Saletta owns shares of Aflac; Texas Instruments; Microsoft; McDonald's; Genuine Parts; Raytheon; United Technologies; Wells Fargo; Teva Pharmaceutical Industries; Emerson Electric; Becton, Dickinson; Walgreen; Union Pacific; Hasbro; UPS; CSX; J.M. Smucker; Air Products & Chemicals; Mine Safety Appliances; Kinder Morgan; and NV Energy.

The Motley Fool recommends Aflac; Becton, Dickinson; Emerson Electric; Hasbro; Kinder Morgan; McDonald's; Mine Safety Appliances; Teva Pharmaceutical Industries; UPS; and Wells Fargo and owns shares of CSX, Hasbro, Kinder Morgan, McDonald's, Microsoft, Raytheon, and Wells Fargo.

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