Over time stocks fall in and out of favor with the media, analysts and investors. It is too easy to fall in love with a stock only to have your heart, and brokerage account, broken. As an investor that takes a value approach to selecting the best dividend growth stocks, I tend to focus on fundamentals with a heavy dose of analysis. It may be surprising, but even this approach will favor certain stocks over time.
A sometimes irrational market will pull down the good stocks with the bad. This is an exciting time for long-term value-focused investors — it creates opportunity. Over time the idiom "the cream rises to the top" has merit and works in the investing world. Great stocks won't stay down forever. Eventually, they will surge back to the top.
Taken to the next level, certain stocks in my dividend growth portfolio tend to be purchased more often than others. This will often push the limit on my maximum allocation limit of 5% per holding in the portfolio. Sometimes, the high allocations are a result of buying up to the limit when the price is down. While other times it is a conscious decision to slightly exceed the 5% threshold.
Below are my five largest dividend growth stock positions based on market value, along with their percentage of my dividend growth portfolio:
ConocoPhillips Co. (NYSE:COP)
Yield: 3.7% | % of DG Portfolio: 4.4%
ConocoPhillips Co. was formed via the 2002 merger of Phillips Petroleum and Conoco and is the fourth-largest integrated oil company in the world.
Procter & Gamble (NYSE:PG)
Yield: 3.3% | % of DG Portfolio: 4.4%
The Procter & Gamble Company is a leading consumer products company, marketing household and personal care products in more than 180 countries.
Genuine Parts Company (NYSE:GPC)
Yield: 3.1% | % of DG Portfolio: 4.7%
Genuine Parts Co is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.
Abbott Laboratories (NYSE:ABT)
Yield: 3.7% | % of DG Portfolio: 5.1%
Abbott Laboratories is a diversified life science company that is a leading maker of drugs, nutritional products, diabetes monitoring devices, and diagnostics. In mid-October 2011, Abbott announced plans to split the company.
McDonald's Corporation (NYSE:MCD)
Yield: 2.7% | % of DG Portfolio: 6.2%
McDonald's Corporation is the largest fast-food restaurant company in the world, with about 32,900 restaurants in 117 countries.
Capital appreciation has played a significant part in the above stock weightings. Since I have owned them, the stocks have generated the following annualized returns: COP 24.57%, PG 6.93%, GPC 36.11%, ABT 11.24%, MCD 26.42%.
As you can see, both MCD and ABT are slightly above my 5% maximum allocation. From a risk standpoint, it is important to define a maximum percentage holding. This helps define boundaries when emotion (greed or fear) is knocking on the door.
Full Disclosure: Long MCD, ABT, PG, COP, GPC See a list of all my dividend growth holdings here.
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