Sunday, January 30, 2011

Best in Breed Dividend Stocks: Core Holdings for the Long-Term Investor (part one)

There are many factors to consider when creating a long term buy and hold dividend portfolio. First and foremost is obviously diversification. As I have stated in previous articles, a properly diversified portfolio can better withstand the occasional sell-off in certain sectors. Second, it is important to accurately identify ‘Best in Breed’ stocks within each sector. These stocks should always be the core of your portfolio. Every investor has different ideas on what constitutes a good investment, here is what I look for.

What constitutes a ‘Best in Breed’ dividend stock?  
  1. Consistent Long Term Dividend Payments: For the most part, we are looking for companies that have paid a consistent dividend for over 10 years. A few good starting points for indentifying these companies are the Dividend Champions and the S&P Dividend Aristocrat.  I prefer the Dividend Champion resource as it focuses on consistent dividend growth.
  2. Dividend Growth: Speaking of dividend growth, we are looking for companies that consistently raise their annual dividend payments. It’s easy to for investors to get stuck on current yield when doing due diligence on a stock. Although a decent current yield is important, it is your future yield on cost that will ultimately matter. The compounding returns of Dividend Growth stocks will outperform strictly high yield stocks in the long run. More on this later.
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  1. Great, these are really simple yet useful advices. I'm a bit more experienced these days, but boy how I wish that someone would have stressed out the importance of a diverse portfolio to me a few years back...

  2. Stocks that increase their dividend every year are usually of excellent quality.