Saturday, June 30, 2012

My goal in the dividend growth account

Basically, my goal is to achieve yield on cost 10% in 10 years.

At the first glance, this goal seems very ambitious.  However, when looking into it a little deeper, I should say that this is a very reasonable and achievable goal.

Firstly, the 10% return is based on cost, the purchase price, not on market price.  If I invest in stocks with solid fundamental financials, I will be very confident to predict an uprising stock market price trend in the long run, reflecting the companies' ongoing growth.  Of course, there are ups and downs in the process, the long-term trend should be upwards.  In the meanwhile, the purchase price is very important.  I should be very patient to wait for a good reasonable entry point, because the purchase price will largely affect my initial yield rate.

Secondly, I only look at those companies that have a consistent dividend growth history in the past 10 years.  With such good record on hand, I believe they will tend to put stakeholders' benefit in a higher priority.  In the future, they will continue to endeavor to increase annual dividend.

Thirdly, here is the guideline to achieve 10% return in 10 years.

In order to achieve this goal, I only look at the gray area, which means the initial yield should be higher than 3%, and the annual dividend growth rate should be 13% or higher.  In this chart, we haven't considered dividend re-investment.  If dividend re-investment is considered, the goal will be achieved faster because of the compounding effect.  Of course, since I plan to put in additional money from my paycheck each month, I'll expect the average yield to cost will be lower than 10% in 10 years.  However, when considering each individual investment, the 10% in 10 years should be guaranteed.

Let's take Walgreen as an example in order to strengthen my analysis:-







Friday, June 29, 2012

Why do I choose to be a dividend growth investor

I used to be a self-claimed value investor.  I input a lot of time and effort to do stock analysis.  I did achieve some good return.  However, I found that I don't always have adequate time to do all those analysis.  I was quite active in year 2009.  However, due to some personal issues, I didn't participate in stock market at all in year 2010 the whole year and the first half of 2011.  When I did have time to take a look at my portfolio, I ran some performance benchmarking my portfolio versus SPY in the same period.  I was disappointed with the result.  Although there were several outstanding stocks I own with very satisfactory performance, 80% of my portfolio had performance worse than the no-brainer SPY.

I learned several lessons from this experience: 1. to be a sensible long-term investor is much better than to be a short-term impulsive one.  2. having a long-term investment strategy to follow is very essential.  3. for a person like me, to purchase a stock with solid fundamental financials and then to "forget" all it after purchase is much suitable for my character.  Capital gain is one of my goals, and long run dividend yield to cost return is much more attractive.  4. I always want to invest in real estate market which I believe can provide me more stable and more potential returns.  However, currently I don't have enough money to invest in housing market, so I decided to set up two pillars for my retirement income account: dividend growth account to begin with, and real estate investment account later when enough money is accumulated.

My goal in dividend growth is to achieve 10% yield to cost in 10 years.  This goal makes sense after analyzing several stocks initial yield and annual dividend growth rate.