those with major exposure to financial lending. General Electric is a conglomerate that greatly expanded their financial lending segments in order to participate in the large level of profitability that lenient lending practices were generating. Of course Citigroup was a major player whose business model is highly exposed to the reckless and leveraged lending practices of most financials.
A quick review of their Earnings and Price Correlated graphs reveals that price drops, in conjunction with permanent or at least more lasting impairments of capital, are more serious than temporary interruptions. These examples illustrate the importance of comprehensive monitoring and due diligence on each company that an investor holds in their portfolio. Even then it would be impossible to be correct in every case. However, appropriate diversification, coupled with research can keep any damage to a minimum.
General Electric Company (NYSE:GE)
Citigroup Inc. (NYSE:C)
Summary and Conclusions
Building a portfolio comprised of high-quality dividend-paying companies, especially Dividend Champions, can be an excellent way for retirees to fund their retirement. Moreover, and in contrast to the widely promoted 4% rule where retirees are actually liquidating portions of their portfolio to make distributions, a well-designed dividend growth portfolio can avoid this problem.
There is more than one way to accomplish this feat. If you build a diversified portfolio of dividend growth stocks where your average yield is 4% or greater, then you can meet the suggested 4% distribution requirement without ever having to touch any of your principal. Even better, mix in enough Dividend Champions or Aristocrats, and you can expect to receive a raise in pay each year.
For those that may be years away from retirement, the portfolio could be constructed with a greater focus on growth than on yield with the idea that growth yield (yield on cost) could fund your retirement needs when retirement actually comes. Additionally, there are several iterations and variances of these two themes that can be initiated depending on the unique situation of each individual.
Finally, in order for a dividend growth portfolio to succeed, investors must accept and recognize that continuous due diligence and monitoring is an absolute necessity. However, there are many sources and tools that can provide investors an edge and/or make it easier for these objectives to be accomplished, FAST Graphs™ is one, and websites such as Seeking Alpha, GuruFocus, Forbes, Morningstar, Value Line, Google Finance, Yahoo Finance, MSN Money, TheStreet.com, and many others too numerous to mention are also readily available.
Disclosure: Long ITW, CL & KMB at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
