This Dividend Portfolio Continues to Dominate

The real-money Inflation-Protected Income Growth portfolio launched 16 months ago as of last Friday's market close. The portfolio's primary objective is to generate an income stream that rises at least as quickly as inflation. As detailed in last week's update, the portfolio has thus far delivered on that objective, with all but one selection increasing its dividend since being selected.

The portfolio, meanwhile, has completely surpassed expectations in its overall performance versus the S&P 500 index and the SPDR S&P 500 (NYSEMKT: SPY  ) ETF, an investable tracker for that index. The table below shows the iPIG portfolio's performance relative to those benchmarks:

Investment

Performance Since iPIG Portfolio Inception

Year-to-Date Performance

iPIG Portfolio

38%

4.7%

SPDR S&P 500, dividends reinvested

36.2%

1.4%

SPDR S&P 500, dividends as cash

35.6%

1.4%

S&P 500

32.6%

0.9%

Data from the iPIG portfolio brokerage account and Yahoo! Finance, as of April 4, 2014. 

Will that continue?
There are no guarantees in investing, and the iPIG portfolio's objective remains the quest for income growth, rather than relative total returns. The iPIG portfolio is not designed to beat the S&P 500 or the SPDR ETF that tracks the index. Still, it could continue to perform well overall, even as it aims for that rising income stream.

The iPIG portfolio has a shot to continue doing well because it traces its investing principles to Benjamin Graham's timeless book on value investing, The Intelligent Investor. Graham, and the generations of value investors inspired by his teachings, outperformed the market by focusing on what the company behind a given stock was really worth, rather than price fluctuations.

The iPIG portfolio adds Graham's often overlooked discussion on the importance of dividends to his well-known value focus as the basis for how it invests. That framework gives it a chance, but not a guarantee, of staying ahead of the market even as its focus remains the search for income growth.

Speaking of growing dividends
This past week, two iPIG selections paid their dividends. Both companies' dividends were higher than the payment they provided their owners last quarter.

Union Pacific (NYSE: UNP  ) handed the iPIG portfolio $0.91 per share on April 1, a nice raise from the $0.79 it paid in January. In addition, Union Pacific's increased dividend actually represents the railroad's second dividend boost within the past year. With a payout ratio of roughly 31% of its earnings, Union Pacific has room to continue increasing its dividend as its business grows over time.

Genuine Parts (NYSE: GPC  ) handed the iPIG portfolio $0.575 per share, also on April 1. That increase represents about a 7% improvement from the $0.5375 it paid in the previous quarter. Genuine Parts is perhaps best known for its NAPA auto parts stores, but it does have other business lines. Indeed, recent acquisitions in its industrial and distribution-related business lines may provide enough overall growth to fuel future dividend increases.

While the iPIG portfolio isn't expecting additional dividends in April, May will start out strong with continued payout growth. Defense contractor Raytheon (NYSE: RTN  ) has declared a $0.605-per-share dividend (payable on May 1), a 10% increase from the $0.55 per share it paid last quarter. Raytheon earned its spot in the iPIG portfolio when worries from the defense sequester knocked its shares down. The company managed its operations well despite that lowered revenue forecast, enabling its stock to recover nicely.

Own businesses -- and let the stocks take care of themselves
With its focus on the businesses behind the stocks, rather than the daily fluctuations of their stock prices, the iPIG portfolio plans to stick to its objective of seeking out increasing dividends. If, as a result of that search, it continues to outperform the S&P 500 and the SPDR ETF that tracks that index, so be it.

The table below shows the overall state of the iPIG portfolio as of market close on April 4, 2014, after 16 months of investing:

Company Name

Purchase Date

Total Investment (Including Commissions)

Current Value
April 4, 2014

Current Yield
April 4, 2014

United Technologies (NYSE: UTX  )

Dec. 10, 2012

$1,464.82

$2,127.24

2%

Teva Pharmaceutical (NYSE: TEVA  )

Dec. 12, 2012

$1,519.40

$2,014.00

2.4%

J.M. Smucker (NYSE: SJM  )

Dec. 13, 2012

$1,483.45

$1,658.35

2.4%

Genuine Parts 

Dec. 21, 2012

$1,476.47

$1,984.90

2.7%

Mine Safety Appliances (NYSE: MSA  )

Dec. 21, 2012

$1,504.96

$2,036.16

2.1%

Microsoft (NASDAQ: MSFT  )

Dec. 26, 2012

$1,499.15

$2,192.85

2.8%

Hasbro (NASDAQ: HAS  )

Dec. 28, 2012

$1,520.60

$2,364.57

3.1%

United Parcel Service (NYSE: UPS  )

Jan. 2, 2013

$1,524.00

$1,962.00

2.7%

Walgreen (NYSE: WAG  )

Jan. 4, 2013

$1,501.80

$2,642.00

1.9%

Texas Instruments (NASDAQ: TXN  )

Jan. 7, 2013

$1,515.70

$2,177.98

2.6%

Union Pacific 

Jan. 22, 2013

$805.42

$1,128.30

1.9%

CSX (NYSE: CSX  )

Jan. 22, 2013

$712.50

$977.84

2.1%

McDonald's (NYSE: MCD  )

Jan. 24, 2013

$1,499.64

$1,565.92

3.3%

Becton, Dickinson (NYSE: BDX  )

Jan. 31, 2013

$1,518.64

$2,094.12

1.9%

Aflac  (NYSE: AFL  )

Feb. 5, 2013

$1,466.35

$1,708.56

2.3%

Air Products & Chemicals (NYSE: APD  )

Feb. 11, 2013

$1,510.99

$2,024.70

2.6%

Raytheon (NYSE: RTN  )

Feb. 22, 2013

$1,473.91

$2,635.47

2.5%

Emerson Electric (NYSE: EMR  )

April 3, 2013

$1,548.12

$1,883.56

2.6%

Wells Fargo  (NYSE: WFC  )

May 30, 2013

$1,525.48

$1,833.72

2.4%

Kinder Morgan (NYSE: KMI  )

June 21, 2013

$1,518.37

$1,386.84

5%

Scotts Miracle-Gro (NYSE: SMG  )

Jan. 3, 2014

$1,974.68

$2,003.20

2.8%

Cash

   

$999.88

 

Total Portfolio

   

$41,402.16

 

Data from the iPIG portfolio brokerage account, as of April 4, 2014.

9 rock-solid dividend stocks you can buy today
The iPIG portfolio owes its market-leading success to one of the secrets that few finance professionals will reveal: 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 (6)

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 May 09, 2014, at 2:29 AM, jbshap wrote:

    Mr. Saletta

    I'm interested in setting up a dividend oriented portfolio. I've just come upon your IPIG portfolio and like the principles behind it. But given the hot performance of the portfolio since inception, do you think it would it or any particular holdings is overvalued and would not make for a good investment right now? If there are particular stocks (whether in the IPIG portfolio or not) that you think would serve as cornerstones of a dividend-oriented portfolio going forward, what are they? In case it matters, my investment horizon is at least 10-15 years and the stocks would be held in a Roth IRA.

    Thanks.

    JBS

  • Report this Comment On May 10, 2014, at 3:15 PM, TMFBigFrog wrote:

    Hi JBS,

    Yeah -- the portfolio has performed well, and valuation may very well be a concern in some cases. For the iPIG portfolio, I walk through the picks, trying to cover around 1 or so a week, to see if they're still worth holding. I recently sold one position from the portfolio on valuation after such a review, and there may be more to come in the future.

    From a "cornerstone" perspective, I used to think that there were stalwart companies that you could "buy and forget" and trust them to continue paying and increasing their dividends. Since the financial crisis, I've changed my thinking a bit. I'm still looking for the potential of continued dividend growth for the long haul, but I'm no longer inclined to "buy and forget".

    Best of luck as you walk down your investing journey, my friend.

    Regards,

    -Chuck

    Inside Value Home Fool

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