84 Attractive Dividend Growth Stocks For Your Retirement Portfolios: Part 2A by Chuck Carnevale, F.A.S.T. Graphs
I recently completed a 3 part series of articles offered to assist retired investors in designing the equity portion of their retirement portfolios. In part 1 of this series found here I presented Peter Lynch’s 6 broad categories of stocks (businesses) that he wrote about in his best-selling book “One Up On Wall Street.” The primary objective of this first article was simply to provide the reader a general idea of the various categories of common stocks that were generally available to choose among. I presented one or two examples of each category in order to illustrate the advantages and/or disadvantages of each category. I also pointed out that not every category was appropriate for most conservative retired investors.
In part 2 found here I pointed out the importance of clearly defining whether your primary investment objective was for current income, future growth or a combination of both. I also touched on choosing the appropriate investment objective relative to whether you are already retired or whether you were in the accumulation phase and planning for future retirement. And I put forward that in order to successfully accomplish your goals, the most critical step was to clearly define them, because once that was done it is much easier to focus only on common stocks that possess the appropriate characteristics consistent with those goals.
In part 3 found here I discussed the advantages and disadvantages of a concentrated stock portfolio versus a more broadly diversified stock portfolio. In this article I presented the views of many renowned expert investors on the subject, as well as my own. I also discussed the advantages and disadvantages of building an equally-weighted stock portfolio versus overweighting certain sectors. And most importantly, I introduced what I considered the universal principle of starting with a plan that applies to all investors. And I added that it is not only imperative to have a plan, it’s even more vital to be disciplined about following it.
For the most part the above series of articles were primarily strategic in nature. I started out by presenting the various categories or types of stocks that investors could choose from. Then I discussed the importance of only choosing the most appropriate stocks to meet your own unique goals, objectives and risk tolerances. And finally, I presented various portfolio construction strategies that individuals could implement according to their own needs and risk tolerances.
Moving from the Strategic to the Specific
After completing the three-part series discussed above referencing available common stock options and strategies for designing the common stock portion of a retirement portfolio, it only seemed logical for me to move from the general to the specific. For the last few years, the overall stock market (S&P 500), and quality dividend growth stocks specifically had become extended based on valuation. However, during August and September of 2015 investors were given what I consider a pause that refreshes.
Although the stock market as represented by the S&P 500 has fallen approximately 6% since July 31, 2015, this would only be slightly more than half way to the definition of a market correction of 10% or more. However, since the beginning of the year (2015) many high-quality dividend growth stocks have, in fact, by definition experienced a bona fide correction. This includes many Dividend Champions and Contenders, which is important because they represent the best-of-breed dividend growth stocks for retirees to include in their portfolios for income.
Therefore, I felt it was appropriate to present an additional series of articles that readers could utilize in order to implement the strategies presented in the first series of articles with specific dividend growth stock examples and choices. In part 1 of this new series found here, I introduced two important principles that I believe are key to the successful implementation of a dividend growth portfolio in order to meet your specific and individual retirement yield objective or need.
Principle number 1 was to be realistic with your yield objective. The central idea behind this principle was to determine a range of yields available from quality, and most importantly, fairly valued dividend growth stocks of various categories. In other words, being clear about the yields available from quality empowers the investor to recognize that reaching for yields above those parameters is risky.
Principle number 2 was to determine how much income your portfolio needs to produce in order to meet your needs. Once this was determined, you could then mix-and-match your dividend growth stock choices appropriately. In other words, if your portfolio was large enough, you could focus on quality stocks with the highest yields and consistent records of dividend increases to meet your current needs. On the other hand, if you needed additional growth, you could focus on quality stocks that offered moderate yields but more growth.
84 Quality Dividend Growth Research Candidates Broken Down Into 4 Categories
I have screened the universe of quality dividend growth stocks that are currently fairly valued and came up with 84 research candidates I was comfortable presenting. In order to meet various individual investor goals or needs, I have broken this list down into 4 categories. The universal focus that I applied when making selections in all 4 categories was reasonable quality and attractive valuation.
The first category is comprised of 24 quality dividend growth stocks with above-average current yields. At the time of this writing the current yields on this first group range from a low of 2.9% to a high of 3.7%. I consider this first group of selections as foundational research candidates that can be utilized as core holdings for the equity portion of most every retiree’s portfolio.
The second category is comprised of 16 quality higher-yielding dividend growth stocks. At the time of this writing the current yields on this second group range from a low of 3.7% to a high of 5.6%. This second category is offered for those retirees that require more yield than was generally available from group 1, but are still looking for quality and safety. Selections from this group can be strategically utilized to increase the overall yield of the retirement portfolio.
The third category is comprised of 30 dividend growth stocks with lower yields but higher expected levels of capital appreciation and dividend growth (growth yield). At the time of this writing the current yields on this third group range from a low of 1.1% to a high of 2.9%. This third category is offered for those retirees or pre-retirees that require additional growth of both capital and dividend income. Selections from this group can be strategically utilized to generate a higher future total return and generate higher future dividend income when it is needed.
The fourth category is comprised of 14 high-quality fairly-valued and higher-yielding REITs. At the time of this writing the current yields on this fourth group range from a low of 3.8% to a high of 9.2%. This fourth category is offered for those retirees looking to increase both the current yield on their retirement portfolios and for the potential for capital appreciation. Selections from this group can be strategically utilized to generate a higher current yield and the opportunity