How Boring Investing Can Fatten Your Wallet

In last week's update, the real-money Inflation-Protected Income Growth portfolio was awaiting dividend news from pipeline giant Kinder Morgan (NYSE: KMI  ) . Sure enough, Kinder Morgan delivered the message the portfolio hoped to hear: an increased dividend backed by strong performance from its key pipelines. 

After the bitterly cold winter and the increase in natural-gas demand that came along with it, news of Kinder Morgan's success shouldn't be all that shocking. After all, it is the largest natural-gas pipeline company in North America; the greater the demand for natural gas, the stronger its business should be.

How good was it?
Kinder Morgan increased its dividend to $0.42 per share, $0.01 ahead of the previous quarter and $0.04 ahead of the same quarter in 2013. Equally important, the company's "Cash Available per Average Share Outstanding" increased to $0.55, improving Kinder Morgan's coverage ratio. That makes it more likely that Kinder Morgan will reach its $1.72-per-share dividend target for 2014.

By increasing its dividend, Kinder Morgan joins fellow iPIG picks Raytheon (NYSE: RTN  ) , Air Products and Chemicals (NYSE: APD  ) , and Hasbro (NASDAQ: HAS  ) in paying higher dividends in May than in February. Texas Instruments (NASDAQ: TXN  ) , the other iPIG pick expected to deliver a dividend in May, will pay out $0.30 per share, consistent with its February level but ahead of its May 2013 dividend of $0.28.

With that news, every company expected to pay a dividend to the iPIG portfolio in May will top last year's level. That goes a long way toward helping the portfolio reach its primary objective of an income stream that increases at least as fast as inflation. That's an incredible reward for shareholders who simply held on through the recent volatility.

Where the growth comes from
Raytheon increased its dividends to $0.55 per share from $0.50 with its recent announcement. The company credited its decent financial position and dedication to a balanced capital deployment plan for its ability to increase its payout by 10%. In other words, Raytheon continues to do well operationally and has a solid balance sheet, so it expects to generate enough cash to distribute more to its shareholders.

Air Products and Chemicals noted that its dividend increase to $0.77 from $0.71 reflected the company's 32nd consecutive year of such hikes. The company indicated that the increase reflects its commitment to return value to its stockholders. With a 32-year history of dividend increases, Air Products and Chemicals has demonstrated not only that commitment to returning value, but to creating it as well. After all, the only way to sustainably increase a dividend is to earn enough to pay more.

Hasbro's increase to $0.43 from $0.40 came as the company struggled with another weak holiday season. Still, back out 2013 restructuring charges, and Hasbro's results would have outperformed its 2012 levels, justifying the increase. Indeed, Hasbro said the cost savings from its restructuring enabled the dividend increase.

Likewise, when Texas Instruments in September increased its dividend to $0.30 from $0.28, the company credited its capital management strategy for the ability to provide that hike, its second in 2013. Texas Instruments has been winding down uncompetitive units such as its wireless business as it focuses on the more profitable parts of its operation. That strategy seems to be paying off for shareholders, as evidenced by a dividend payment topping last year's levels.

Get rewarded for owning stock
The iPIG portfolio actively seeks out companies with a history of dividend increases that also look capable of continuing to increase their payouts over time. There are no guarantees in investing, but months like May is shaping up to be for the portfolio from a dividend perspective certainly do provide tangible rewards for the risks investors take by buying stock.

Put together an entire portfolio of companies with similar characteristics and you may wind up with something similar to the iPIG portfolio. That portfolio finished last Thursday's holiday-shortened trading week looking like this:

Company Name

Purchase Date

Total Investment (including commissions)

Current Value
April 17, 2014

Current Yield
April 17, 2014

United Technologies (NYSE: UTX  )

Dec. 10, 2012

$1,464.82

$2,134.26

1.99%

Teva Pharmaceutical (NYSE: TEVA  )

Dec. 12, 2012

$1,519.40

$1,932.30

2.51%

J.M. Smucker (NYSE: SJM  )

Dec. 13, 2012

$1,483.45

$1,643.90

2.40%

Genuine Parts (NYSE: GPC  )

Dec. 21, 2012

$1,476.47

$2,008.36

2.63%

Mine Safety Appliances (NYSE: MSA  )

Dec. 21, 2012

$1,504.96

$2,034.00

2.12%

Microsoft (NASDAQ: MSFT  )

Dec. 26, 2012

$1,499.15

$2,200.55

2.80%

Hasbro

Dec. 28, 2012

$1,520.60

$2,348.23

3.15%

United Parcel Service (NYSE: UPS  )

Jan. 2, 2013

$1,524.00

$1,960.00

2.73%

Walgreen (NYSE: WAG  )

Jan. 4, 2013

$1,501.80

$2,670.00

1.89%

Texas Instruments 

Jan. 7, 2013

$1,515.70

$2,154.01

2.62%

Union Pacific (NYSE: UNP  )

Jan. 22, 2013

$805.42

$1,137.54

1.92%

CSX (NYSE: CSX  )

Jan. 22, 2013

$712.50

$957.10

2.27%

McDonald's (NYSE: MCD  )

Jan. 24, 2013

$1,499.64

$1,604.00

3.23%

Becton, Dickinson (NYSE: BDX  )

Jan. 31, 2013

$1,518.64

$2,036.88

1.93%

AFLAC (NYSE: AFL  )

Feb. 5, 2013

$1,466.35

$1,702.35

2.35%

Air Products and Chemicals

Feb. 11, 2013

$1,510.99

$2,004.98

2.61%

Raytheon

Feb. 22, 2013

$1,473.91

$2,703.51

2.42%

Emerson Electric (NYSE: EMR  )

April 3, 2013

$1,548.12

$1,916.32

2.51%

Wells Fargo (NYSE: WFC  )

May 30, 2013

$1,525.48

$1,810.41

2.45%

Kinder Morgan

June 21, 2013

$1,518.37

$1,418.34

4.97%

Scotts Miracle-Gro (NYSE: SMG  )

Jan. 3, 2014

$1,974.68

$1,908.16

2.93%

Cash

   

$999.88

 

Total Portfolio

   

$41,285.08

 

Data from the iPIG portfolio brokerage account, as of April 17, 2014.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just 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 (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.

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: 2921860, ~/Articles/ArticleHandler.aspx, 10/21/2014 5:42:42 PM

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...


Advertisement