Dividend Growth Daily Chat 03\0

Welcome to the forum for Dividend Growth Investing discussion on Seeking Alpha. A new article is posted every two weeks as a space for sharing of ideas, discussing concepts, and digging deeper on DGI. All previous blogs are listed in chronological succession on the main chat page.

As promised and with your valued feedback, we are publishing a new version of the article with some changes to make it more engaging.

If you’d like to share your DGI thoughts with us in future editions, hit the comments and let us know. We’ll be looking at continuing to do this moving forward.

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Featured comment from last edition

From Wyo Investments:

As many probably know, Altria Group (MO) and Philip Morris International (PM) make up a huge percentage (18%) of the income in my primary portfolio that I write about. This is primarily due to holding them pre-split and adding a lot in 2009.

I kick myself for not reducing these positions in 2017, but hindsight is 20/20. While MO has been an okay dividend grower, PM has been a dog. Always a promise of better growth around the corner and plenty of excuses. Even with the earnings forecasts for PM in the next couple of years, I am skeptical of them materializing or, if they do, translating into dividend growth.

I’m considering trimming some of my PM position if the yield falls below 4%. Ordinarily, I would start selling covered calls against part of the position, but the options aren’t paying much, and I’m not certain I want that big of a tax hit as my cost basis is around $40.

I don’t have much in the current portfolio to spread the funds into that would match the yield and get me around a 5%+ dividend growth. With CME Group (CME), Prudential Financial (PRU), and Best Buy Co. (BBY) being the likely options. Although I could do a hybrid split like I often do with Enterprise Products Partners (EPD) or Automatica Data Processing (ADP) or some other combination to get the yield and growth.

I also could consider a new position, with United Parcel Service (UPS) or Chevron Corporation (CVX) looking like the most likely candidates without going into banks, or REITs. I don’t want a REIT as I am looking for qualified dividends and I own several real properties. I’m open to any thoughts anyone has!

What’s your take on SO, MO and PM? What are you buying these days, share your views in the comments?

More on Dividend Growth Investing:

• Microsoft, McDonald’s Among 13 Companies To Reward Investors With Increased Dividends In September: “At the end of July, I provided predictions for 14 dividend growth companies that have historically announced annual payout increases in August. In this article, I’ll look at another 13 dividend growth companies that I expect will announce their annual dividend increases in September.

  Here are the results from my predictions from August (the original predictions are available here), followed by my predictions for the dividend increases that I’m expecting to be announced in September:

  (All yields are based on stock prices at the market close on Friday, August 30th.)”

• DNP: Long-Term Capital Preservation Combined With Consistent Income: “Looking at the long-term performance since inception, the price has only decreased 6.27%. Remember, DNP is best utilized for the income generation and not the capital appreciation. This rule generally applies to most closed end funds and should be considered before making any investment decisions. The current dividend yield sits at 8.2% and the consistent payouts have contributed to a solid total return greater than 800% since inception. DNP is top-notch when it comes to dividend consistency, as it has managed to maintain the same monthly payout for an extended period of time.”

• My Top Investment In September As Rate Cuts And The Election Come Into Focus: “In what follows, we’ll cover many bases:

  • More on last week’s discussion about the bad economic ideas being proposed during the current election cycle
  • Ray Dalio asks where the money will come from for increased government spending
  • Gold’s correlation with deficit spending
  • Business equipment investment showing some weakness
  • The sausage recession indicator
  • Some indicators that seem to contradict the oncoming recession thesis
  • Where I’m directing most of my investible dollars in September

  Onward!”

• Monthly Options Series: Earn A Potentially Consistent 10% Income (September 2024): “ Earning a decent income from your investments significantly higher than the inflation rate is always challenging. This has been especially true in the past decade and a half. In the last couple of years, interest rates have gone up, but in most cases, the fixed deposit rates are still lower than the inflation rate. Furthermore, interest rates are now going to decline going forward. Investing in fundamentally strong dividend stocks is an excellent choice for building long-term wealth but not so much for the current income. We believe selling options (cash-covered puts and covered calls) remain a relatively good choice for earning a high current income. Obviously, there’s some learning curve, and there are some risks involved with options, and we do not recommend blindly jumping into the game. We will discuss how to mitigate the risks in a bit. Also, we will urge extra caution and due diligence.”

• Prospect Capital: Surprisingly Well-Covered 14% Yield: “Prospect Capital Corporation (NASDAQ:PSEC) is a well-managed business development company that had no issues whatsoever in the last year to cover its dividend with net investment income.

  As a matter of fact, Prospect Capital presently has a better dividend pay-out ratio than some of its larger and more appreciated BDC cousins.

  Prospect Capital’s credit profile also improved QoQ as the non-accrual ratio dropped to a low 0.3%, suggesting impressive loan quality for the business development company.

  I don’t think the big discount to net asset value is justified when taking into account Prospect Capital’s robust financial condition and performance. The 14% dividend yield is sustainable, in my view.”