One small portion of my invested portfolio is run as a ‘Dividend Growth Portfolio’ (DGP). I kicked off this portfolio in early 2013, and have run it pretty consistently ever since. It’s time for my first ever ‘deep dive’ into how this portfolio has been performing.
The strategy: buy growing dividends
I didn’t document my exact strategy for this portfolio at the time, but it has been something along the line of this:
To own Dividend Champions, and their ilk, with a strong likelihood of growing their dividend over the short and long term.
I have been a longtime admirer of the Dividend Champions, who are the ~100 publicly listed US companies that have raised their dividend for 25+ years in a row. The UK has hardly any companies that can boast of this track record, and the UK approach to paying dividends (interim + final, rather than 4 equal quarterly instalments) makes the UK fiddlier to monitor for shallow analysts like me. I will certainly consider shorter track records than 25 years, such as the Dividend Achievers, Dividend Contenders etc, but for true quality you need Champions.
You will note that there is nothing in this approach that prioritises high yield payers. In fact US companies tend to have lower yields than UK companies. Much as I like dividend income, for this strategy I am prioritising predictable growth in dividends, not the level of dividend itself.
Leverage: a changing approach
This portfolio was one of my early uses of leverage, though in a very modest way: I used to leverage up the portfolio by one to two year’s worth of dividends (i.e. 2-5%). In late 2015 this approach changed as I leveraged up across the board to buy my Dream Home and by 2016 my leverage for this portfolio had risen to over 40%. As rates have risen, I have reduced my leverage, so right now the Loan to Value is around 30%, and I am in fact paying almost as much interest (~3%) as the after tax dividend yield of the portfolio.
How the stock lineup has expanded over time
My initial set of about a dozen holdings comprised stocks like AXP, CAT, KO, MCD, T, VZ, WFC, with a smattering of IBM, GE in there too. Sizing my positions has been very ad hoc.
FIRE v London 