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.
Sometimes an 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 Stocks based on market value, along with their percentage of my dividend growth portfolio and lifetime return:
Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries. The company has paid a cash dividend to shareholders every year since 1944 and has increased its dividend payments for 52 consecutive years.
Yield: 2.8% | % of DG Portfolio: 5.2% | Lifetime Return 17.1%
McDonald's Corporation (MCD) is the largest fast-food restaurant company in the world, with nearly 35,000 restaurants in 119 countries. The company has paid a cash dividend to shareholders every year since 1976 and has increased its dividend payments for 37 consecutive years.
Yield: 3.2% | % of DG Portfolio: 4.7% | Lifetime Return 14.2%
General Dynamics (GD) is the world's fourth largest military contractor and also one of the world's biggest makers of corporate jets. The company has paid a cash dividend to shareholders every year since 1979 and has increased its dividend payments for 23 consecutive years.
Yield: 2.1% | % of DG Portfolio: 4.7% | Lifetime Return 32.5%
ConocoPhillips Co. (COP) is one of the largest independent oil and gas exploration and production (E&P) companies in the world, COP spun off its downstream assets in May 2012. The company has paid a cash dividend to shareholders every year since 1934 and has increased its dividend payments for 14 consecutive years.
Yield: 3.5% | % of DG Portfolio: 4.4% | Lifetime Return 21.2%
Raytheon Company (RTN), the world's sixth largest military contractor, specializes in making high-tech missiles, advanced radar systems and sensors, defense electronics, and missile-defense systems.
Yield: 2.5% | % of DG Portfolio: 4.3% | Lifetime Return 50.23%
Capital appreciation has played a significant part in the above stocks' weighting. As you can see, both JNJ is 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 JNJ, MCD, GD, COP, RTN in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.
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