Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Trust, but Verify

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

When you invest your money by buying shares of a company's stock, you trust the management of that company to shepherd your resources well. You're taking a financial risk, in the hope that the people running the business will generate sufficient returns on your behalf to justify the faith you place in them.

Unless you've already got enough cash or other influence to get a seat on a company's board, all you really know about what's happening in a company comes from its financial statements. Those reports, while useful, really only give you a fairly high-level, summarized snapshot of what's going on. Still, they can provide great information when it comes to figuring out how well a company is handling the cash you invest with it.

Dividends tell a story
For the real-money Inflation-Protected Income Growth portfolio, dividends do double duty as both the primary source of income for the portfolio and as a reality check on what's happening in the company. Every company in the portfolio needs to have a decent dividend with a history of increases and provide a reason to believe that dividend has a shot of continuing to grow. If the path to dividend growth evaporates, the company risks losing its spot in the portfolio.

Microsoft (NASDAQ: MSFT  ) , for instance, is an IPIG selection that's in the process of reinventing itself to better compete with the likes of Google (NASDAQ: GOOGL  ) . Microsoft is in the process of creating a low-cost version of Windows that comes bundled with and pre-configured to use its Bing search engine. The goal is to try to effectively compete with Google's free Chrome operating system and its close ties to Google's search engine.

Competition often brings out the best in companies, but the key risk to Microsoft is the fact that its Windows operating system has long been one of the company's "cash cow" businesses. Microsoft has long relied on Windows to generate much of its revenue. If it doesn't successfully monetize the tie-in with Bing, the loss in revenue from the cheaper operating system could very well impact its ability to continue to cover and raise its dividends.

The IPIG portfolio is willing to trust that Microsoft's leadership is operating in its shareholders' best interest with the cheaper operating system as a Google fighter. Still, the portfolio will continue watch Microsoft's financial reports and dividend coverage levels to verify whether the strategy creates value.

The rewards for success
The key advantage of this method of investing is that when it works, the result is an increasing income stream from dividends. Since last week's update, the IPIG portfolio received dividends from three companies, each of which paid at higher levels than they did in the same quarter last year. The table below shows those improved payouts:


March 2013 Dividend

March 2012 Dividend

Dividend Change (%)

Aflac (NYSE: AFL  )




J.M. Smucker (NYSE: SJM  )




Wells Fargo (NYSE: WFC  )




Data from Yahoo! Finance, as of March 7, 2014.

Wells Fargo's 20% increase versus year's level was a result of the bank's recovering from the financial crisis and receiving permission from the Federal Reserve in 2013 for a substantial dividend increase. While Wells Fargo has already mentioned wanting to increase its dividend this year as well, chances are it won't continue increasing it at that 20% clip. After all, over time, a company can only increase its dividend to the extent it has enough gains in cash flows to support it.

J.M. Smucker continues to excel in its primary business of providing staple foods like peanut butter, jelly, and coffee. Its 11.5% increase versus last year's dividend was certainly supported by its success. Still, it would be a surprise for J.M. Smucker to continue increasing its dividend at that rate, as the company's expected growth doesn't look capable of supporting increases quite that high.

Aflac's 5.7% increase did come in at better than inflation, and it's closer than the other two to a growth rate that the company might be able to support for some time to come. Still, as an insurance company, Aflac is in the business of pricing risk, and it has no guarantee that it will always cover its risks with the premiums is receives.

All told, a reasonable way to invest
The reality remains that there are no guarantees in the market. By investing in a way that lets you verify that the management of the companies you own are acting in your best interest, you can put yourself in a place where you can better trust them with your money. For the IPIG portfolio, that means looking for the ability pay and increase dividends. The current snapshot from that search is the portfolio below:

Company Name

Purchase Date

Total Investment (Including Commissions)

Current Value
March 7, 2014

Current Yield
March 7, 2014

United Technologies (NYSE: UTX  )

Dec. 10, 2012




Teva Pharmaceutical (NYSE: TEVA  )

Dec. 12, 2012




J.M. Smucker (NYSE: SJM  )

Dec. 13, 2012




Genuine Parts (NYSE: GPC  )

Dec. 21, 2012




Mine Safety Appliances (NYSE: MSA  )

Dec. 21, 2012




Microsoft (NASDAQ: MSFT  )

Dec. 26, 2012




Hasbro (NASDAQ: HAS  )

Dec. 28, 2012





Jan. 2, 2013




Walgreen (NASDAQ: WBA  )

Jan. 4, 2013




Texas Instruments (NASDAQ: TXN  )

Jan. 7, 2013




Union Pacific (NYSE: UNP  )

Jan. 22, 2013





Jan. 22, 2013




McDonald's (NYSE: MCD  )

Jan. 24, 2013




Becton, Dickinson (NYSE: BDX  )

Jan. 31, 2013




Aflac (NYSE: AFL  )

Feb. 5, 2013




Air Products & Chemicals (NYSE: APD  )

Feb. 11, 2013




Raytheon (NYSE: RTN  )

Feb. 22, 2013




Emerson Electric (NYSE: EMR  )

April 3, 2013




Wells Fargo (NYSE: WFC  )

May 30, 2013




Kinder Morgan (NYSE: KMI  )

June 21, 2013




Scotts Miracle-Gro (NYSE: SMG  )

Jan. 3, 2014








Total Portfolio




Data from the IPIG portfolio brokerage account, as of March 7, 2014.

Dividends are a central part of this portfolio in part because one of the dirty secrets that few finance professionals will openly admit is that dividend stocks as a group generally 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 (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2869842, ~/Articles/ArticleHandler.aspx, 9/3/2015 12:42:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Chuck Saletta

Chuck Saletta has been a regular Fool contributor since 2004. His investing style has been inspired by Benjamin Graham's Value Investing strategy. Chuck also can be found on the "Inside Value" discussion boards as a Home Fool.

Today's Market

updated 3 hours ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 4:03 PM
AFL $57.45 Up +0.80 +1.41%
Aflac CAPS Rating: *****
GOOGL $644.91 Up +15.35 +2.44%
Google (A shares) CAPS Rating: ****
MSFT $43.36 Up +1.54 +3.68%
Microsoft CAPS Rating: ***
SJM $115.64 Up +1.62 +1.42%
J.M. Smucker CAPS Rating: *****
WFC $51.99 Up +1.00 +1.96%
Wells Fargo CAPS Rating: *****