Saturday, July 12, 2008

Dividend Investment Styles - The Div Guy

With my first post on The DIV-Net, I wanted to cover the different styles of dividend and value investing I use in my stock portfolio. Investing is as much an art as a science so I use the different approaches to to cover my different personal styles. I like consistent slow growing companies and I like stocks that pay an above average dividend yield and I also like to purchase stocks that are out of favor which sell at a discount. My three styles of investing each make up a portion on my stock dividend account which I plan to grow dividend income to cover most of my basic expenses in retirement. I will also have my retirement plans to draw from and with any luck I may get some money from social security. I am not counting on Social Security for my retirement plan but it will be a bonus if I receive any.

1. Solid Slow Growth Stocks
The first style of dividend investing I started using about 10 years ago is selecting consistently growing companies that have a history of regularly increasing their dividends. These are your Blue Chip Stocks that also fall into the S&P 500 Dividend Aristocrats list of companies. I like to look for stocks in this group with a dividend yield over 2% but this is not a requirement and I will purchase a very good company that is paying less than 2%. These are stocks I do not plan to sell unless there are some major changes in the company. Some examples of the stocks I own that fall in this category include Procter & Gamble (PG), Wrigley (WWY) and General Electric (GE).

2. High Yield Dividend Stocks
The second style of investing I use is selecting companies that pay a higher that average dividend or distribution. I again look for companies with a solid financial background but I don't need to see the company increase it's dividend each year. One of my favorite investment books that chronicles this style of investing is The Single Best Investment by Lowell Miller. I look for dividend yields of over 4% for this group. These stocks are meant to be long term holding of at least 5 to 10 years. Some examples of these stocks in my portfolio include Kinder Morgan Energy Partners (KMP), Duke Energy (DUK) and American Capital Strategies (ACAS).

3. Value Stocks
The third group of stocks I invest in are stocks that are selling at a step discount to their book value or normal stock price. This is a category that is very difficult to measure and quantify. I started using this method in the ealy 90's by purchasing then Bank of New York that was selling in the single digits and it reminds me of today's financial stocks. Some of the other stocks that I purchased using this method include ING and AllianceCapital which is now AllianceBerstein during the mutual fund scandals of late 2003. I sold these stocks for nice gains and used the money to purchase some of my High Yield Dividend Stocks. Some people also will call this method of investing Vulture Investing meaning most investors have given these stock up for dead. I have no dividend yield requirements for this group but I prefer a stock that is paying a dividend or may pay a dividend in the future. The holding time is not certain for this group but can be less than a year to over a couple of years. Some current examples of this are some of my bank holding such as Bank of American (BAC) and Royal Bank of Scotland (RBS) and others such as Cooper Tire & Rubber (CTB) and Calpine Corporation (CPN).

I use these three investing styles to build a portfolio of invests that will help me reach my dividend income needs for retirement. One of my favorite expressions about investing is that retirement investing is an experiment that we each will take on and we will only know the final results when we reach retirement. So let's hope our dividend investment experiments work out well.

I hope you enjoy The DIV-Net site and follow us along on our experiment as we discuss dividend investing styles and stocks.

This article was written by The Div Guy. You may email questions or comments to me at thedivguy@gmail.com.

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