Patience Pays Off Quickly

This year started off ugly for the market, with the S&P 500 falling around 3.6% in January. For the real-money Inflation-Protected Income Growth portfolio, it was a sign of just how important patience is in investing successfully. Indeed, last week's update focused on how dividends make it easier to have the patience to hold on during troubled times.

Somewhat surprisingly, that patience was amazingly quickly rewarded. The market rallied, carrying the IPIG portfolio with it. As this chart shows, the portfolio has since recovered everything it lost in the January swoon, and is now retesting its recent high-water mark:

Chart from the IPIG portfolio brokerage account, as of Feb. 14, 2014.

How did that happen?
In the past week, the IPIG portfolio gained more than $1,000 in market value, a significant rise in such a short time for a portfolio that's worth around $39,000. As is often the case, a big chunk of that gain was due to the market's own 2.3% rise on the week. Still, good old-fashioned fundamentals, activist investors, and industry-level successes played their parts in helping the portfolio gain.

Mine Safety Appliances (NYSE: MSA  ) was the IPIG portfolio's biggest winner on the week, gaining about 10% thanks to a surprisingly strong earnings announcement. As its name states, Mine Safety Appliances is in the business of providing safety equipment, primarily to the mining industry. That makes it a very economically sensitive stock and one where the positive news truly took the market by surprise.

Air Products & Chemicals (NYSE: APD  ) took second on a percentage gain basis, up around 7.5% on news that activist investor Bill Ackman set a $200 price target for the company over the next three years. Ackman's claim is that Air Products & Chemicals can improve its operating margin has some merit. Still, the company has to remember to balance the needs of margin with the need to keep making long-term investments to grow the business.

Walgreen (NYSE: WAG  ) rounded out the top three percentage gainers, on a combination of its own bullish views at a London investor conference and a strong earnings report from archrival CVS Caremark (NYSE: CVS  ) . CVS's strength may bode well for Walgreen, as the two drugstore titans generally face similar economic conditions and risks. Still, while bullish sentiment from management may project good earnings from Walgreen, it needs to be backed up with actual results in upcoming announcements.

In spite of the overall strength in the portfolio, not every pick rose on the week. J.M. Smucker (NYSE: SJM  ) put in the worst performance, falling around 1.7%. Weak earnings results and a softening forecast drove Smucker's decline, which knocked its shares down to around 5% above the IPIG portfolio's purchase price from December 2012. While Smucker's namesake jams and jellies remain staples in people's homes, it's becoming clear that its growth story isn't what it once looked like.

Still -- you had to be there to get it
The IPIG portfolio's quick recovery from its January drop certainly was a pleasant surprise. Still, had it taken longer to recover, the IPIG portfolio would still lean on its key investing criteria of dividends, valuation, balance-sheet strength, and diversification to see it through. Those key fundamentals underpin the overall portfolio and will, through good times and bad. Put it all together, and as of Friday, Feb. 14, 2014, the portfolio looked like this:

Company Name

Purchase Date

Total Investment (Including Commissions)

Current Value
Feb. 14, 2014

Current Yield
Feb. 14, 2014

United Technologies

12/10/2012

$1,464.82

$2,049.66

2.07%

Teva Pharmaceutical

12/12/2012

$1,519.40

$1,679.22

2.95%

J.M. Smucker

12/13/2012

$1,483.45

$1,560.77

2.53%

Genuine Parts

12/21/2012

$1,476.47

$1,976.85

2.50%

Mine Safety Appliances

12/21/2012

$1,504.96

$1,905.12

2.27%

Microsoft

12/26/2012

$1,499.15

$2,069.10

2.98%

Hasbro

12/28/2012

$1,520.60

$2,271.26

3.26%

UPS

1/2/2013

$1,524.00

$1,944.80

2.55%

Walgreen

1/4/2013

$1,501.80

$2,591.20

1.95%

Texas Instruments

1/7/2013

$1,515.70

$2,061.42

2.74%

Union Pacific

1/22/2013

$805.42

$1,080.84

2.02%

CSX

1/22/2013

$712.50

$936.02

2.18%

McDonald's

1/24/2013

$1,499.64

$1,532.48

3.38%

Becton, Dickinson

1/31/2013

$1,518.64

$2,059.20

1.91%

Aflac

2/5/2013

$1,466.35

$1,704.51

2.34%

Air Products & Chemicals

2/11/2013

$1,510.99

$1,995.46

2.42%

Raytheon

2/22/2013

$1,473.91

$2,590.11

2.29%

Emerson Electric

4/3/2013

$1,548.12

$1,806.28

2.67%

Wells Fargo

5/30/2013

$1,525.48

$1,706.81

2.60%

Kinder Morgan

6/21/2013

$1,518.37

$1,418.76

4.85%

Scotts Miracle-Gro

1/3/2014

$1,974.68

$1,846.08

3.03%

Cash

   

$807.94

 

Total Portfolio

   

$39,593.89

 

Data from the IPIG portfolio brokerage account, as of Feb. 14, 2014.

Why dividends rule
A key reason dividends are so important to the IPIG portfolio is also one of the dirty secrets that few finance professionals will openly admit: Dividend stocks as a group handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best.

With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click 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 (8)

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 February 18, 2014, at 8:43 AM, nahag wrote:

    Hi Chuck, Does your dividend portfolio give your dividends in every month of the year?

  • Report this Comment On February 19, 2014, at 8:24 PM, TMFBigFrog wrote:

    Hi nahag,

    Currently, yes. Is it guaranteed? No. The portfolio isn't managed to attempt to receive dividend income monthly, it just so happens that the current crop of companies in it tend to pay their dividends in such a way that every month is expected to have at least one dividend payment in it.

    Best regards,

    -Chuck

    Inside Value Home Fool

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