Hello everyone! I hope you had a wonderful week last week!
I’m sorry that this Durable Dividends article is finding you a couple of days late. I’ve been posting these pieces on Saturdays for about a month now; however, being that this past Saturday was Christmas Day, I was obviously busy doing other things.
But, the good news is, my experience on Christmas inspired the topic for this week’s article, so all was not lost.
This was the first Christmas that we had with my infant son. He still doesn’t have any idea who Jesus Christ or Santa Claus are, and he doesn’t understand what presents are, or why he’s been dressed up in red and green onesies for most of the last month, but it was still a special time for my wife and I (as well as our friends and family) to get to experience the holiday with a new family member.
And, while my two year old daughter hasn’t grasped the concept of Santa living in the North Pole with elves and delivering presents via a sled pulled by flying reindeer, she does really enjoy the Grinch movie (I can’t count how many times I’ve watched it with her in recent weeks) and she had a blast ripping apart everyone’s wrapping paper for them.
Overall, my family has been blessed with happiness, health, and good fortune and I cannot complain about the Christmas season in the least. However, there was a bit of a bittersweet narrative surrounding our holiday gatherings this year…
Due to ongoing health concerns, our family came to the conclusion that it was now time to help my grandmother move into a nursing home, which was a stressful, emotional, and complicated decision for all involved.
Realizing that an elderly person should no longer be living alone because they need help with day-to-day activities is a fairly simple and easy decision to arrive at. Reality forced everyone’s hand in that regard. Honestly, because of her deteriorating health, that wasn’t much to discuss.
But, keeping all of her affairs in order, especially from a financial perspective, is where things become very complex (largely due to the costly and convoluted nature of the healthcare system in the United States).
So, with all of that in mind, I wanted to focus on the good and the bad aspects of my recent Christmas celebrations, focusing on retirement strategy this week – and namely, using the reliably increasing dividends that dividend growth stocks provide as a means to provide a comfortable, and most importantly, a sustainable retirement.
When I think about the best gifts, I think about things that will provide comfort and enjoyment over and over again.
Even though it was unseasonably warm where I live, a nice pair of wool socks or a fleece-lined flannel shirt come to mind. Or, maybe a book that I’ll read over and over again. Or, in the case of my toddler, the twin “big girl” bed that she received. God willing, she’ll be sleeping on that mattress for the next 16 years until she’s off to college.
These types of gifts are great because not only do we get enjoyment out of using them, but every time that we do, we’re able to remember the moment that a loved one gave them to us and we get to appreciate the giver, as well as the gift, time and time again.
Well, while dividends may not be quite so sentimental, the fact is, a reliably growing dividend is the gift that keeps on giving, from a financial perspective. In terms of financial freedom, it doesn’t get much better than that.
This is especially relevant when it comes to my grandmother’s situation (or any retiree’s situation, for that matter) because for those who haven’t subscribed to the dividend growth strategy, the typical plan for paying bills in retirement involves the liquidation of assets.
I’ve said this before, but I think it’s worth repeating…
My hatred of the traditional retirement plan called “the 4% rule” was my original inspiration for adopting the dividend growth strategy.
I imagine that this is a strategy that most individuals have discussed with their financial advisers when making retirement plans, but if you aren’t familiar with the 4% rule, instead of wasting time here describing it, I’ll simply provide a link to a more in-depth description provided by Investopedia.
My biggest fear, when it comes to the 4% rule, is the idea of potentially running out of assets to sell in retirement.
Yes, ideally, even though one is selling shares from their investment portfolios to fund their retirement, the total returns that the rest of their portfolio generates should be in excess of 4%, meaning that this is a sustainable process.
But, during an extended bear market, becoming a forced seller into weakness could potentially disrupt one’s retirement plans in a major way.
I’d hate to outlive my savings. I’d hate to be stressed about finances in retirement, or worse, become a burden to my loved ones (or society as we whole) because I didn’t plan accordingly.
And, most of all, I hate the idea of liquidating my assets in retirement because it makes all of the hard work that I’m doing now when it comes to responsibly saving and compounding my wealth seem somewhat meaningless.
Sure, the work that I’m doing in the present could result in a nice and comfortable retirement for my wife and I; however, I want more than that out of my assets…
Not only do I want to be able to use my investments to create a reliably increasing dividend income stream that supports my wife and I in retirement, but I want to be able to pass along the dividend growth machine that I’ve spent my life building to my kids so that their lives are easier as well.
The idea of leaving behind a financial legacy to loved ones is very important to me.
Without getting too morbid here, I imagine that when I’m lying on my deathbed, knowing that my kids and their families will be well taken care of will provide solace.
This, I think, more than anything, is why I loathe the idea of being forced to sell shares in retirement.
So, with that being said, this week what I decided to do for the Durable Dividends article was take a look at the Dividend Champions List (which is also a free product that we offer at Wide Moat Research; here’s a link where you can check it out) and use the screener tool that it provides to look for companies that might potentially help a retiree transition away from the 4% strategy and into a more dividend growth oriented portfolio.
To do this, I looked for companies that offer a 4%+ dividend yield (the idea being, instead of selling shares, one can withdraw the passive income stream), a 5-year dividend growth rate of at least 2% (this is meant to show that the dividends are not only safe, but should also help to protect the purchasing power of one’s passive income stream from being eroded away by inflation over time; while inflation is currently much higher than 2%, this is the long-term average in the U.S. so I think it’s a solid target to consider), and a minimum of a 14-year annual dividend growth streak (which means that not only did these companies continue to provide reliably increasing income during the recent COVID-19 recession, but also during the Great Recession in 2008/2009; to me, any company that successfully navigated those two massive sell-offs is a high quality dividend growth stock worthy of consideration for ownership).
One might assume that there aren’t too many companies which meet all 3 of those qualifications. But, if this is the case, you’d be surprised…
There are quite a few high quality dividend growth stocks in the market. And, as of today, the Dividend Champions List showed that 24 different stocks met the basic screen that I ran.
| Company Name |
Ticker Symbol |
Price |
Dividend Yield |
5-year Dividend Growth Rate |
Annual Dividend Increase Streak |
| Donegal Group Inc. A |
DGICA |
$14.21 |
4.50% |
2.10% |
19 Years |
| Donegal Group Inc. B |
DGICB |
$12.88 |
4.32% |
2.30% |
19 Years |
| PPL Corporation |
PPL |
$29.53 |
5.62% |
2.10% |
19 Years |
| Verizon |
VZ |
$52.68 |
4.86% |
2.20% |
17 Years |
| Healthcare Services Group, Inc. |
HCSG |
$17.34 |
4.84% |
2.60% |
19 Years |
| Philip Morris |
PM |
$93.54 |
5.35% |
3.20% |
14 Years |
| Enterprise Products Partners L.P. |
EPD |
$21.58 |
8.34% |
3.30% |
24 Years |
| South Jersey Industries, Inc. |
SJI |
$25.86 |
4.80% |
3.40% |
23 Years |
| Chevron |
CVX |
$118.79 |
4.51% |
3.90% |
34 Years |
| Exxon Mobil |
XOM |
$61.89 |
5.69% |
3.90% |
39 Years |
| National Retail Properties |
NNN |
$47.30 |
4.48% |
3.90% |
32 Years |
| Norwood Financial Corp. |
NWFL |
$26.16 |
4.28% |
4.00% |
23 Years |
| Avista Corporation |
AVA |
$41.32 |
4.09% |
4.20% |
19 Years |
| Realty Income |
O |
$70.39 |
4.17% |
4.20% |
28 Years |
| NorthWest Corporation |
NWE |
$55.78 |
4.45% |
4.60% |
17 Years |
| Leggett & Platt |
LEG |
$39.93 |
4.21% |
5.10% |
35 Years |
| International Business Machines |
IBM |
$131.62 |
4.98% |
5.40% |
26 Years |
| Spire Inc. |
SR |
$64.52 |
4.25% |
6.20% |
19 Years |
| Magellan Midstream |
MMP |
$45.20 |
9.18% |
7.10% |
21 Years |
| Universal Corporation |
UVV |
$54.12 |
5.76% |
8.00% |
51 Years |
| Edison International |
EIX |
$67.62 |
4.14% |
8.80% |
18 Years |
| OGE Energy Corp. |
OGE |
$37.51 |
4.37% |
8.80% |
15 Years |
| Altria |
MO |
$46.79 |
7.69% |
9.70% |
52 Years |
| Enbridge |
ENB |
$38.44 |
7.00% |
10.40% |
25 Years |
Data collected on 12/28/2021
Obviously not all of these stocks may be right for you. For instance, this list doesn’t factor in valuation metrics at all (only dividend income metrics) and therefore, it’s likely that at least a handful of these stocks are not attractive purchases at their current prices.
Furthermore, investors should always consult a professional financial adviser before making significant changes to their retirement plans (there are so many financial variables involved with a safe, sustainable, and comfortable retirement that it’s important to have a trusted adviser who has an in-depth understanding of your financial situation, as well as your long-term goals, to help you reach them).
But, at the very least, I hope this article inspired productive thought.
It’s my belief that a well diversified dividend growth portfolio can successfully replace the 4% strategy for many individuals.
I’m basing my personal plans for financial freedom off of a dividend growth-centric strategy (roughly 80% of my personal portfolio is made up of dividend growth stocks; the rest of my exposure lies with non-dividend paying growth stocks, a few contrarian/deep value bets, crypto currencies, and some precious metals bullion).
And while a dividend growth strategy may not be perfect for everyone, hopefully this article shows that there are quite a few high quality, high yielders left in the market today (even when the broader averages are trading at all-time highs) which might be able to boost the size of one’s passive income stream is a relatively safe and sustainable way.
I’ll close down this piece saying two things:
One, if you’re interested in learning more about the dividend growth investing strategy and gaining access to an actively managed dividend growth portfolio which has maintained a perfect dividend growth record throughout the pandemic period, then please take a look at The Intelligent Dividend Investor, a monthly newsletter product that I run which includes real-time trade alerts, weekly portfolio reviews, and a 20-page monthly newsletter all focused on dividend growth stocks.
And two, this week we’ll get back to our normal Saturday publication schedule, so be on the lookout for your next Durable Dividends article on New Years Day!
Best wishes, all!
Disclosure: Of the stocks discussed in this article, Nicholas Ward is long VZ, PM, NNN, O, MO, ENB.
This article is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended. It does not guarantee that securities mentioned in this newsletter will produce profits or that they will equal past performance. Additionally, we are not an investment advisor and do not offer securities or tax advice. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. Nicholas Ward, contributors and staff members of Wide Moat Research may hold positions in some or all of the stocks listed.
Nicholas Ward is a research analyst who currently writes for Seeking Alpha, The Dividend Kings, iREIT, and Forbes Real Estate Investor. Before that, he was Founder and Editor-in-Chief of The Dividend Growth Club, as well as the Income Minded Millennial. Nicholas has also contributed to Sure Dividend, Investing Daily, and The Street, where he covered stocks in Jim Cramer's Action Alerts PLUS Portfolio.
Nicholas holds a bachelor of arts from The University of Virginia, where he studied English and studio art. Prior to transitioning into the financial industry, he managed a vineyard in the foothills of the Blue Ridge Mountains.
