Today, we are buying the first position in our Dividend Growth Portfolio.
As a reminder-
The goal of the Dividend Growth Portfolio is simple:
To achieve dividend income growth of 7–10%+ annually, while maintaining capital appreciation in line with or better than the S&P 500 over a full market cycle.
Achieving the above goal would allow us to take full advantage of all of the benefits of dividend growth investing, which you can see here.
Members of Dividendology will be able to view all the holdings of the Dividend Growth Portfolio on Dividendology.com.
🏆 Quality Characteristics
In an ideal world, the stocks we buy in our dividend growth portfolio will be able to be held for decades to come.
This is because the companies we aim to buy have qualities that set them apart, like:
High returns on invested capital
High free cash flow margins
Growing and predictable free cash flow
Capital-light business models
While dividend growth has historically outperformed, dividends also have incredible defensive characteristics.
For example, in the 2000s, the S&P 500 had negative returns.
But investors who held quality dividend growth stocks saw their income grow larger every single year.
📈 Outperforming the Market
As discussed on Friday, there are primarily two engines that lead to outperformance:
Earnings growth
Multiple expansion
The stock we’re adding to our portfolio today can benefit from both engines of return, with earnings projected to grow at a double digit rate, and the company trading well below its historical valuation multiples.
Keep in mind, I am a believer in the Rule of Three from François Rochon:
One year out of three, the stock market will go down at least 10%
One stock out of three that we buy will underperform
One year out of three, we will underperform the market
I believe this will be the case for our dividend growth portfolio.
But declining share prices can be a huge advantage to the dividend growth investor.
Declining stock prices mean the following:
You can buy stocks at better valuations
Stocks will have higher dividend yields
Your reinvested dividends will buy you more shares, buying you even more income
💰Our New Buy
This is the first purchase for our Dividend Growth Portfolio.
You can get access to everything pictured below here:
Now, let’s dive into our first Dividend Growth purchase…