Finally we have come to our last rule: Stocks offer yields greater than the broader market and are expected to grow. It is important to keep in mind the two separate portions of this statement:
- Yields greater than the broader market
- Yields that are expected to grow
When searching for stocks for the DOCTOR DIVIDED portfolio, I typically start by looking for stocks whose yields are greater than that of the S&P500. Currently that is ~2%. This means that for every $100 dollars investing the the stock market, you will be payed $2 dollars annually. This money is paid to the shareholders via company earnings. Look to stocks whose earnings per share (EPS) are greater than the annual yield. It is paramount to remember this key fact!!!
Next you want to look for stocks that historically have increased dividends over time. I look for dividend growth of > 5% annually. For this reason (and reasons mentioned in Grow – Grow – Grow!) you want expected EPS to be greater than the dividend growth rate. Recognize that if companies don’t earn, you don’t get paid.
Using these two rules to guide research will be time well spent!
“Without continual growth and progress, such words as improvement, achievement, and success have no meaning.” – Benjamin Franklin
As dividend investors, it is important to monitor look for companies reporting strong and consistent earnings growth. This is because earnings will be used to payout dividends. Therefore, the DOCTOR DIVIDED portfolio aims to look for earnings growth at least on par with dividend growth. For large established companies, we are satisfied with a sustained earnings growth of about 5-10%.
Once a stock is found, it should be further analyzed. Although “past performance is not a predictor of future results,” for large cap companies, consistency is key. Good candidates for our portfolio will demonstrate increasing in earnings per share (EPS), revenue, and cash flow. EPS can be even further dissected by analysis of generally accepted accounting principles (GAAP) vs non-GAAP. These measurements help to offer uniformity in reporting financial performance. Typically low variation is more desirable when comparing these two values.
Rule 2: Find high quality American stocks with strong finances and low debt.
When searching for stocks to include in the DOCTOR DIVIDEND portfolio, I use screeners to help narrow down the 1000+ companies. Most of my research is conducted using Charles Schwab platform. The companies in focus have the following properties:
a) Exclude stocks not listed on the NYSE or NASDAQ
b) Strong cash flow
c) Low Debt to Equity
Once the perfect stock is selected chart review is important to best determine two things; a fair stock price and a safe entry point. As a dividend investor, most people will emphasize the importance of holding a position for the long term, and therefore minimize purchase price. Doctor Dividend does not concur! While no one can truly “time” the market, but you can utilize “cost averaging” to minimize risk.
“Diversity: the art of thinking independently together.” – Malcolm Forbes
The importance of a diversified portfolio is to spread out the risk of owning individual stocks. There are 10 Major sectors of the stock market: Energy, Financial, Material, Industrial, Utility, Technology, Telecommunications, Consumer Discretionary, Consumer Staples, and Healthcare. It is important to own companies that represent each group. More importantly, I have selected companies that overlap.
- JNJ is a healthcare stock with many products considered consumer staples
- SBUX is a consumer discretionary stock. However to many (including myself), coffee is a consumer staple.
- VZ is a telecommunications stock which is in the process of acquiring yahoo thus entering into the technology realm.
- VLO is an energy stock however with both refineries and wind farms the stock may also be considered a materials and utilities.
The current DOCTOR DIVIDEND portfolio sectors allocations and goals can be seen below:
Over the past years I have perfected my stock screener to find stock fitting for the DOCTOR DIVIDEND Portfolio. Parameters were heavily influenced by many books and people. These include (but were not limited) by: “Dividend Empire,” “Single Best Investment,” “Perfect Portfolio,” the Motley Fool, and the Oracle of Omaha himself Warren Buffet. Using these methods I searched for High Quality, Steady Growth, and High Yield stocks.
4 Main Principles of the DOCTOR DIVIDEND Portfolio:
- Create a diversified portfolio that represents each major market sector.
- Find high quality American stocks with strong finances and low debt.
- Ensure that stocks have consistent historical growth as well as prospective growth.
- Stocks offer yields greater than the broader market and are expected to grow.
Welcome to DOCTOR DIVIDEND!
I’m currently a resident (aka Doctor-in-training) studying Internal Medicine/Pediatrics. I also happen to be dividend investor. I started investing in the stock market while in medical school as a way to reminisce about my college days studying biomedical engineering. Over almost 10 years I have stop investing in “hot picks” and started investing in solid blue-chips. My current portfolio is almost 3 years old and has a composite yield of roughly 3.25%.
My hope is to help educate people on the fun of investing as well as the importance of building a strong financial portfolio. I plan to dissect my portfolio stock by stock and explain my selection process.
|TOTAL Dividend Payout:||490|