A number of Dividend Alerts subscribers have asked about the workings and results of our dividend income investing strategy, and I have been thinking about how best to show this without disclosing the information solely available to the Dividend Income Investor.com paid-for subscribers.
Herego . . .
As many of you know, the Dividend Income Portfolio is a paid-for subscriber-only “demonstration” portfolio that I use to illustrate the practical application of our in-house developed dividend investing and dividend-income growth investing principles.
The portfolio demonstrates the workings of our investment methodologies and the progress I am making in investing my own cash that I have allocated in this ‘semi-public’ portfolio. It is run as a low cost stocks and shares ISA at TDdirectinvesting.co.uk. The portfolio is part of my overall retirement portfolio of assets.
The Dividend Income Portfolio was created on February 1, 2011. It was fashioned from a prior portfolio that was not solely dedicated to a dividend income and growth strategy.
Before I start to report on our 22 month performance, please be aware that the information I am presenting here is based on just a small fraction of the timescale for which I have designed my investment strategy to be run. I intend to run this portfolio for at least ten years, if not much longer.
Dividend Income Investor.com’s portfolio management strategy is very much based on a “dividend-vale buy and monitor” approach. Once dividend paying shares have been purchased at or near historic undervalued levels, capital values are very much a secondary concern to me, until the moment that they start to encroach on their historically overvalued levels.
I keep track of major news about the individual shares in the portfolio on an on-going basis, and report accordingly in our Dividend Income Blog, for the general public, and more succinct for subscribers at Dividend Income News. Of particular concerns are things like:
- If a company cuts its dividend or increases its dividend
- If a company makes a major acquisition, disposal or announces that it is in play itself
- If a company has been hit by an ‘un-foreseen’ event such as an oil rig that blows up and is on the nightly news for weeks with pictures of oil spewing uncontrollably into the Gulf of Mexico with dying pelicans all over the place
- How any of the above may impact on the Portfolio and whether such requires an adjustment in the Portfolio
Beyond that ongoing attention, I perform a half yearly formal Portfolio Review to examine the portfolio in depth, to consider it from a strategic point, and to take any appropriate actions based on what I find out.
The day-to-day awareness and the formal Portfolio Reviews combined create a buy-and-monitor habit that helps avoid the pitfalls of a passive buy-and-forget approach, or, indeed overtrading.
Since the launch of the Dividend Income Portfolio, early February, 2011, we have purchased a number of dividend paying shares when they were historically undervalued.
The latest purchase took place in April 2012.
The overall goal of the Dividend Income Portfolio is to attain a yield on cost of at least 10% within 10 years of the portfolio’s creation in 2011.
Some people object to the yield on cost metric, stating that it just measures past performance and has no relevance for future decisions. I see their point, but I find it inspiring to set a goal such as attaining at least 10% annual income return on my money within 10 years after I start investing it.
Another way of stating exactly the same goal would be to say that I want the Dividend Income Portfolio to be delivering at least £7,689 in annual dividends when it hits its 10th anniversary. The two goal statements are mathematically identical. Maybe it’s less objectionable to state it the second way.
Why £7,689? The portfolio was converted from an older “aimless” portfolio to one with a focused dividend income and income growth strategy, based on our in-house developed dividend valuation and financial strength methodologies.
On its “official” starting date (February 1, 2011), the Dividend Income Portfolio had a total value of £76,893 rather than a nice round number. So £7,689 is 10% of that.
So how are we doing after 22 months?
|Book cost||Value||Income||Yield on|
Please be aware . . .
- this is the portfolio overview as from 1 February 2011 until 30 November 2012, i.e. 22 months. Current ‘value’ is as per closing on December 3rd.
- book cost includes all costs of purchase, including commission and stamp duty
- shares have been bought during the last 22 months, not all on February 1st, 2011; the last shares were purchased in April 2012 (Company7)
- this overview only tracks actual dividends received during the 22 months; not announced, e.g. we are expecting to receive a dividend payment for Company2 of £117.51 before calendar year end (when yield on cost for Company2 will go up to 5.24%), while the dividends of several other portfolio companies have already been announced these will be paid early next year
- as this is a long-term portfolio, I am more interested in the yield on cost on the overall portfolio (which increases with each dividend payment received). Target yield on cost for the portfolio is at least 10% overall in 8 years’ time (ten years from start)
- the share portfolio’s yield on cost is a pleasing 6.53%. However, when taking into account the cash in the portfolio, the total portfolio’s yield on cost is just 2.61%
- I have only received one dividend payment from Company7, since purchase, with the larger part to be received early next year
- while all companies, bar one are currently valued higher than at purchase this is very much a secondary concern to me as I am primarily focused on sustainable and increasing dividend payments.
Why so much cash?
As per closing December 3rd, the value of the overall portfolio, including cash of £47,476 amounts to £82,461.
You may be surprised that after 22 months more than 50% of our Dividend Income Portfolio remains in ‘un-productive’ cash, but, remember, we are only interested in purchasing the right dividend paying companies when they are historically undervalued.
As a result, we are looking forward to the next major sell-off, when we have the resources to be able to purchase the companies we want at the prices we are willing to pay for.
Our aim is to end up with a high quality dividend paying portfolio numbering some 20 different companies (potentially with more than one company per sector), due to diversification reasons, primarily London listed, but potentially also non-UK listed ones.
Also note: our stated investment policy does not ‘allow’ us to own more companies in one sector, once the total current value of such sector breaches approx 10% of the total portfolio – again safeguarding (sort-off) the total portfolio from sudden collapse in any one sector.
While it is still early days for the Portfolio, I hope I have given you a flavor of how relatively low-risk – increasing – returns are possible with our dividend income and dividend growth portfolio based on when they have been purchased at historically undervalued levels.
If you like what you see, and would like to do the same, I would like to invite you to make use of our 2012 Christmas gift idea.
Christmas gift idea from Dividend Income Investor.com
As a long term dividend income investor, I invest in high quality dividend paying companies but only when they are historically undervalued as well as when they are financially strong based on our in-house developed dividend share valuation and financial strength investment methodology.
With the potential to provide a regular, increasing, and perpetual income, as well as capital growth over the long term, investing in dividend paying shares when they are historically undervalued which I believe will generate the type of returns I require.
In order to maximise your long-term returns, you need to be able to Enter and exit high quality dividend paying shares at the right time while receiving increasing dividends from companies that have been paying dividends for decades and are financially strong.
Our 25% Christmas and New Year gift to you
As our Christmas and New Year gift to you, but only as from now till the end of 2012, I am happy to offer you, your family and friends our already discounted two year subscription service at an additional 25% discount.
Please include the discount code A11 when you sign up for a two year subscription of our dividend share valuation and financial strength service, here.
I hope you will make use of our Christmas and New Year gift. And, don’t hesitate to use it yourself, give it to one or more family members or even your friends.