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Introducing the Dividend Growth Index

The Dividend Growth IndexThis post was updated on October 4th, 2011

Each year Mike at The Dividend Guy, hosts a dividend stock-picking contest among the financial bloggers. Last year he hosted The Best Stock Picks Contest for 2011, and one of his readers pummelled all the bloggers with his 94% gain!

This year it’s a little different. Rather than a stock-picking contest, Mike has gathered an exceptional group of seven eight dividend investors and financial bloggers to create a dividend project. By coincidence that includes me! Each of us has picked our favourite three dividend stocks, creating a portfolio (or index) of twenty-one 24 dividend stocks. The Project is called the Dividend Growth Index (DGI), and includes both Canadian and U.S. stocks.

Mike will follow the entire index on his site, but each of us will provide quarterly updates on our stock picks, analyzing performance, dividend payouts, and other important news related to our companies. Each of us will update our results quarterly starting on December 31st.

Update to the Index

On Monday October 3rd, Dividend Growth Investor was officially added to the Dividend Growth Index, and his three picks are Chevron (CVX-N), McDonald’s (MCD-N), and Enterprise Product Partners (EPD-N). This now brings the Dividend Growth Index up to 24 companies, with 8 investors choosing three stocks each.

The Rules

The rules are pretty simple! There are seven eight bloggers picking three stocks each, for a total of 21 24 stocks to create the Dividend Growth Index (DGI). To be selected for the DGI a stock must pay a dividend. The Index then uses an equal weighting for each stock, and the starting price was initiated on the close of Friday September 23rd, 2011. All dividends will be reinvested into a cash account, instead of DRIPs (Dividend Reinvestment Plans). Once a year, each blogger will make the decision to reinvest those dividends into one of their 3 stocks.  A stock may be dropped from the index, and a new stock added. However the emphasis is on a long-term buy and hold strategy, to foster the accumulation of dividends.

The Benchmarking

Although it hasn’t been confirmed, we will be benchmarking the Dividend Growth Index to a combination of the TSX Composite Index and the S&P 500 Composite Index.  That would be about 60% to the S&P 500, and 40% to the TSX. More information to follow on this!

PS – This is a secret dividend project, so no indexing investors allowed!  We are going to beat the index anyway, since we all know a carefully chosen portfolio of dividend stocks (even risky ones) will beat the index every time.  (Don’t tell Andrew Hallam or the Canadian Couch Potato I said that – OK).

The Dividend Growth Investors

Seven Eight financial bloggers, who also invest in dividend stocks, will contribute to the DGI. You’ll recognize these names, and if you don’t your missing out on some great reading. For example, Dividend Monk writes some of the best stock analyses around. My Own Advisor is one of my favourite bloggers – combining both index and dividend investing strategies. Dividend Mantra is on his journey to accumulate wealth with a Buffett inspired strategy, and he wouldn’t buy a bond if I paid him. The Wealthy Canadian is the new blogger on the scene, but he’s a millionaire whose been investing in dividend stocks for years. And the Passive Income Earner is also on his way to dividend wealth.


The Dividend Growth Index

There are 21 24 stocks that make up the Dividend Growth Index, selected from some of the large sectors on the U.S. and Canadian exchanges. We have some very astute and established dividend investors and financial bloggers contributing to the index, and for the most part everyone has made some great selections. Certainly there are some riskier stocks here that I would not add to my portfolio, and I’ll discuss that in another post. But each blogger will explain their picks in more detail next week.  There is no competition here; everyone is contributing to the performance of an overall index (but I’d still like to win). As I used to tell my grandmother when I was kid playing cards with her, “…winning isn’t everything, but losing isn’t anything!”

There is about a 60% allocation to U.S. stocks which trade on the NYSE and Nasdaq, and a 40% allocation to stocks which trade on the Canadian TSX (see table below). Since the Dividend Growth Index companies are personal stock picks, the index is not weighted by sector (see table below). For example, the DGI is over-weighted towards Consumer Products, and Oil and Gas companies, which comprise 53% of the index. Anytime you move away from an equal-weighting in a portfolio there are risks. Here are the seven eight bloggers and our three picks:

Table 1. The Dividend Growth Index

Company Ticker Dividend Yield Sector Investor
Abbott Labs ABT-N 3.80% Consumer Products My Own Advisor
Aflac AFL-N 3.80% Financial Services Passive Income
Bank of Nova Scotia BNS-T 4.20% Financial Services My Own Advisor
Canadian Nat. Railway CNR-T 2.00% Transportation and Environmental Passive Income
Canadian Nat. Resources CNQ-T 1.20% Oil and Gas Passive Income
Chevron Corp. CVX-N 3.40% Oil and Gas Dividend Growth Investor
CML Healthcare CLC-T 8.40% Other Services My Own Advisor
Coca-Cola KO-N 2.80% Consumer Products Dividend Guy
Conoco Phillips COP-N 4.20% Oil and Gas Dividend Mantra
Daylight Energy DAY-T 10.60% Oil and Gas Wealthy Canadian
Energy Transfer Equity ETE-N 6.30% Oil and Gas Dividend Monk
Enterprise Product Partners EPD-N 3.40% Oil and Gas Dividend Growth Investor
Husky Energy HSE-T 5.50% Oil and Gas Dividend Ninja
Intel INTC-Q 3.80% Industrial Products Dividend Guy
McDonald’s Corp. MCD-N 3.20% Merchandising & Lodging Dividend Growth Investor
National Bank NA-T 4.20% Financial Services Dividend Guy
Novartis AG NVS-N 4.00% Consumer Products Dividend Monk
PepsiCo PEP-N 3.40% Consumer Products Dividend Ninja
Phillip Morris PM-N 4.80% Consumer Products Dividend Mantra
Procter & Gamble PG-N 3.40% Consumer Products Dividend Mantra
Progressive Waste BIN-T 2.60% Transportation and Environmental Wealthy Canadian
Royal Bank RY-T 4.80% Financial Services Wealthy Canadian
Staples SPLS-Q 3.00% Merchandising & Lodging Dividend Ninja
Wal-Mart WMT-N 2.90% Merchandising & Lodging Dividend Monk
Average Dividend Yield 4.15%

Table 2. DGI Allocation by Stock Exchange

Exchange No. Companies Percentage
TSX – Toronto Stock Exchange 9 38%
NYSE – New York Stock Exchange 13 54%
Q – Nasdaq 2 8%
Totals 24 100%

Table 3. DGI Allocation by Sector

Sector No. Companies Percentage
Oil and Gas 7 29%
Consumer Products 6 25%
Financial Services 4 17%
Merchandising & Lodging 3 13%
Transportation and Environmental 2 8%
Industrial Products 1 4%
Other Services 1 4%
Total 24 100%

Conclusion

Next week I’ll run a detailed post on my three stock picks and why I chose them. I currently hold Staples in my portfolio, and I would not hesitate to buy a position in either Husky or PepsiCo:

  • Husky Energy – HSE-T
  • PepsiCo Inc.  – PEP-N
  • Staples Inc. – SPLS-Q

Readers, if you were playing what three stocks would you pick? What do you think of the Dividend Growth Index?  Have a great week everyone!

For more detailed information see the Dividend Growth Index at the Dividend Guy Blog.

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29 Responses to "Introducing the Dividend Growth Index"

  1. MoneyCone says:

    Looking forward to more on this project!

  2. Mauricio says:

    This is just great! Thank you guys!

    My 3 picks would have been:

    EIT.UN
    REI.UN
    ECI

    I opened a play account and choose some of yours picks to see how they are going…

    Thanks again!

  3. Killer post. Wow.

    I can’t wait to get this index rollin’! Will tweet!

    Thanks again to you and other bloggers for allowing me to play again. A big thanks to The Dividend Guy for this initiative. Fun stuff!

  4. Ninja,

    Great job here. You did an excellent job explaining the ins and outs of the project.

    And you’re right…I wouldn’t buy a bond if you paid me. :)

    Great stuff. Thanks for letting me play!

  5. @MoneyCone Thanks!

    @Mauricio thanks for posting! I see you are going for the higher yield, but lower growth stocks (income trust style) :)

    @MOA Thanks man! Uncle Mike invited you LOL :)

    @Mantra Thanks Mantra! It will be fun to forget about indexing for a while and go all out on dividends! As I said to MOA Uncle Mike let you play, but I would have allowed you in too ;)

    Cheers! let the games begin…

  6. Hi Ninja!

    A superb job outlining the DGI and our plan with this initiative. It could not have been better.

    It’s going to be interesting to see how this basket of stocks collectively performs; you’re right -index investors will cringe when comparisons are made ;)

  7. Great introduction! I am looking forward to look into the details of the index too. The sector and exchange ratio is pretty interesting.

  8. Vangrl says:

    my 3 picks would have been:

    Alta
    Brookfield renewable Power
    Enbridge

    for what it’s worth:)

  9. spbrunner says:

    Since I am not working on living on dividends, I would go for TD Bank (TSX-TD); Fortis (TXS-FTS) and Enbridge (TSX-ENB).

    Great idea.

    Susan

  10. @spbrunner Hi Susan thanks for dropping by! Your three picks are excellent, and anyone here would agree with those solid Canadian companies.

    @vangrl For what it’s worth those are good picks too! – assume you mean AltaGas and not TransAlta? either of those are fine :)

    @PIE Thanx for posting!

    @TWC Thanx for the comments, I wanted to write the article so people who had no idea what DGI is – would be able to understand it.

    Well lets see how it goes, I’m never one to boast we could beat the index – but I think we should stand a pretty good chance at it with these picks.

    Cheers! Now to go explore Chicago.. Art Museum on the agenda for Monday :)

  11. Rock the Casbah says:

    This sounds like a great project and I look forward to following the results. As I read about it and the participants, I couldn’t help thinking about some of the alliances of comic book superheroes (Marvel Avengers, D.C. Justice League, etc.) I followed as a kid. And, well OK, still occasionally enjoy as adult. Almost like a collection here of dividend investor superheroes. Hmmm, maybe this is a comic book concept in the making. In the meantime, don’t let the analogy go to your heads. :)

    But seriously, it sounds like collection of solid choices from a group of dedicated dividend investors. I try to follow three of the blogs (D. Mantra, Ninja and Monk) as often as possible and I’ll definitely have to check out the others. I also feel good that at least one pick out of each set of three is either a stock in my portfolio (ABT, PG, PEP), or a stock I came close to picking and still might at some point in the future (INTC, CNI, RY and NVS).

    I know some posters have been offering their three picks as food for thought. So, here’s my very modest two cents worth.

    Johnson and Johnson (JNJ)
    Exelon (EXC)
    TD Bank (TD – NYSE)

  12. @Rock the Casbah Sorry man this analogy has already gone to my head LOL! :) But really good picks on your part as well.

    Good for you buying TD Bank, which is Canada’s top bank IMO, and for recognizing it’s available on the NYSE. I would just like to reiterate that point, that many great Canadian companies also trade on the NYSE for U.S. investors. Great comment man, thanx for posting!

  13. DIY Investor says:

    Great project.
    I like

    SDRL
    INTC
    VZ

  14. This looks like a great, comprehensive project Ninja! I like the solid feel to it: rather than a one year stock contest (which is fun, but meaningless) this is something people can learn a lot from. So you and the other bloggers are adding great value for your readers, and I hope you keep track of this for years to come. I don’t have a stock to add…but you guys don’t need me to. Great list so far!!

    Sorry for my absence on your blog lately. Life has been a whirlwind!

  15. Andrew Hallam delighted to have you drop by! And apologies on my part for not dropping by your blog more often – also been busy :) Agreed, much more for readers to learn by following a dividend index of stocks, than a stock picking contest.

    I’ll make you a deal Andrew. I’ll manage the DGI ETF for you (since you don’t know anything about investing) and only charge you a 1% wrap fee, plus annual admin fees. You in? ;)

    DIY Investor Robert thanks for dropping by! Yes it is a great project isn’t it? I especially like your selction of Intel, and Verizon is a good pick. Seadrill is an intersting choice, care to share your thoughts on that one?

    Cheers!

  16. Cool project! I’m excited to follow along and see how each of your picks do.

    I’ll try and make sure I buy more Staples and Pepsico products this year ;)

    So are you all actually investing in these picks or is this just hypothetically? :)

    • Fifteen years would give you a nice idea how they are doing. Anything shorter than that wouldn’t make much sense to me. Yeah, it seems like a long time. But even a decade is a blip in the world of the stock market.

      Keep it going Ninja!

  17. Y&T Pepsi no problem, but remember Staples is a value play – it could be a long term ride for that one.

    Andrew Hallam Great point Andrew!

  18. Jack says:

    I think this is a very interesting idea – Making a ‘pseudo fund’ from the top picks of some of the best investment bloggers online.

    I’m just hesitant of investing in US stocks due to currency conversion.

    I’ll definitely keep up with the Canadian portion of this group though!

    Good luck with the project, and here’s hoping it makes a mint :D.

  19. Potato says:

    If you want to add my picks (or just read them in the comments for amusement) I’d lean towards a few of the higher yeilders in other sectors for a bit of balance: CUS or CHE.UN for non-energy chemicals, IPL.UN or VSN for pipelines. Not quite as sure for the third pick, maybe IDG for more retail (but *far* too illiquid for a realistic index), PZA.UN (or another restaurant trust), or CHL.A (though with a large amount of energy services, that’s a bit too close to the already large energy weighting).

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