Dividend Growth Strategies

Is it still necessary to prove the superiority of a strategy based on increasing dividends? Dividends have an unfortunate tendency to beat the marketwhile being less volatile. Ned Davis has shown that over the last 30 years, they have posted a total annual return of 9.5%, more than other dividend-paying stocks, and far more than non-dividend-paying stocks. With this in mind, this blog focuses on stocks that offer progressive distributions, through four complementary strategies. What are the differences between them? How do they complement each other? Which to use and how?

The strategy "Global Dividend Growers is the very first strategy to appear on this site. Its effectiveness and consistency are well established. It consists of a selection of low-volatility stocks offering growing dividends, year after year. The companies are solid, which means they can pay their distributions over the long term. You'll find many dividend aristocratsbut not only. GDGs are ideal for building a portfolio fund. If you had to use just one strategy, this is it.

As GDGs are mainly denominated in dollars, even if they are carefully selected for their resistance to the greenback's weakness, it is also advisable to diversify your portfolio with securities based on other currencies. The strategy " Ex-US International ETFs and Dividend Stocks " is a selection of securities offering a solid, progressive yield and good protection against currency and market risk. ETFs are composed of international equities and bonds (including emerging markets), excluding the United States. Swiss and European equities are selected for their long-term profitability and attractive valuation.

By their very nature, GDGs and Ex-USs are not very sensitive to economic fluctuations, and therefore to stock market ups and downs. However, you may wish to further reduce your exposure to market risk, while protecting yourself from currency risk and, of course, continuing to receive valuable dividends. This is where the next two strategies come into play, particularly interesting when the market is booming.

The strategy "Smoking & Drinking Dividends consists of a selection of companies active in the tobacco and/or alcoholic beverages sectors. The stocks of these companies have the particularity of being relatively insensitive to economic variations, and therefore to the market. They also have little exposure to currency risk. The abundance of cash generated by these companies enables them to pay a generous dividend. On the other hand, it's clear that these investments are anything but ethical, so it's up to you. 

Finally, the " REITs & MLPs " is a selection of U.S. stocks that offer growing dividends, year after year. They are particularly generous in terms of distributions, thanks to special tax treatment. The stability of their business model, their independence from equity and currency markets, and the attractive income they generate, can represent an attractive opportunity for (future) annuitants. On the other hand, the high volatility of REITs and MLPs may not suit the personality of all investors.

The table below summarizes the qualities of each strategy:

* inappropriate; ** neutral; *** good; **** very good; ***** excellent

How do you choose between these four strategies? Can you use one without the other, depending on your objectives? You don't need to use all of them, but you should always start with the GDGs. If you want to limit yourself to just one strategy, then that's the one you need. The other three approaches are derivatives of the GDG, based on similar principles, but with specific features that enable them to diversify and hedge the risks associated with the first strategy.

While GDGs are self-sufficient, spontaneously hedging against currency, market and emotional risks, they can be optimized with the other three strategies. By selecting the best securities from each of these approaches, you can build a portfolio that is diversified, low in volatility, relatively independent of the dollar and stock market indices, and above all, one that lets its owner sleep soundly.

The algorithm provided in the member section determines each week the relationship between profitability and risks incurred. As a result, it constantly selects the best securities for each strategy, based on the objectives set out in the table above.

In conclusion, increasing dividends offer a simple, methodical and low-risk approach to investing in stocks. What's more, stock selection and monitoring require little time. We have seen above how different strategies complement each other, each with its own specific features. Despite these slight differences, the basic principle is always the same: growing dividends. It's frighteningly simple and outrageously effective at the same time.