Hello world! I am a 28 year old investor who has recently taken a liking to dividend investing with the goal of creating a stream of ever-increasing income to fuel retirement for later in life! Let's first begin with my investment history... I primarily invest into a 401k plan and have made a few stock trades over the past two years where I have made small gains. After reading various articles and performing some modeling of dividend growth stocks the whole concept of dividend growth investing has made complete sense to me as a superior way of investing cash over time in order to accumulate large amounts of wealth.
Quick reasons for taking this investing approach:
1. Income stream which beats the rate of inflation
2. Historical data of % of dividend income which contributes to total stock returns
3. Investment in companies that produce things I use every day just makes sense
I have recently begun a portfolio where I intend to purchase dividend growth stocks which will pay out increasing distributions year after year which will, fingers crossed, beat the market over time and build the necessary wealth needed to "retire" later on in life.
Now, on to the stocks which start the portfolio. First off, many stocks are at a multi-year high at the moment and many consider such stocks to be "fully" or "fair" valued based upon historical financial fundamentals and/or future projections. I primarily agree with this view on the current price of some stocks. For example, some DJIA stocks such as KO, JNJ and MCD trade at an approximate multiple of around 20. For many people this is too high of a price to pay, myself included. The current yields on these stocks are around 3% which is a fair entry point for a long term proven dividend growth stock. Nevertheless, I am holding off a little bit before beginning a core position in stocks such as these. To begin, I have initiated positions in the following:
1. INTC: Yield of 4.2% with moderate growth : While some say the slow and possible demise of PC sales will drown this stock, I disagree. This company innovates in how they have produced chips over the years. The chips get smaller and smaller. They have very strong fundamentals, are a best of breed and if they can capitalize on mobile and tablets I see them being a very healthy company for years to come.
2. TGT: Yield of 2.3% with big dividend growth: I purchased this stock because of dividend growth. The initial yield is not necessary too favorable (while I would prefer 3%), but the growth in dividends over the past 5 years has been 21% and the company only has a 29% payout ratio. I see this company able to increase dividends at a high clip for years to come. Furthermore, Target is a store I enjoy going to shop in. If I believe in a product/service it provides much more confidence in order to make an investment in it.
3. AAPL: Yield of 2.3%: I traded AAPL on it's rise and sold out near the top. Since then, the stock has fallen around 35%. I just bought back in as a value investor rather than a growth investor. With lots of push from heavy hitters such as David Einhorn urging the firm to return capital to investors, along with rumors of various products (I think a TV product could be significant), I believe the company will most likely increase the dividend soon and also announce a new product before year-end. Now, let's discuss fundamentals. This stock dropped down to around $420 recently and I wish I bought in then. I just bought in at $460 but feel very good about the value of this investment. The stock trades at a P/E of 10 today, has over $120 billion in cash, no debt and has an existing product line which will produce billions and billions for years to come. Even if the company doesn't produce monster products such as iphone and ipad, they will come out with something and refresh current product lines. Hence, I believe the stock at a price under $500 is of great value at the moment. I cannot say how long I intend to hold this stock, but I think at least for 3-5 years the stock will be solid.
As far as positions I want to initiate next, I am doing research on XOM and CVX and woud like to purchase one soon. Also, the various consumer products / discretionary companies are on the radar and positions will be initiated on market pullbacks. Stay tuned for more in-depth analysis of individual stocks and of my portfolio in coming posts.
Thank you for reading,
IHeartDividends
