Dividend Growth Strategies

Est-il encore nécessaire de prouver la supériorité d'une stratégie basée sur les growing dividends ? Ces derniers ont une fâcheuse 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 " est une sélection de titres offrant un rendement solide et progressif ainsi qu’une bonne protection face au risque monétaire et de marché. Les ETFs se composent d’actions et d’obligations internationales (y.c. marchés émergents), hors Etats-Unis. Les actions, suisses ou européennes, sont sélectionnées pour leur profitabilité à long terme et leur valorisation attractive.

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 " est une sélection de titres US qui offrent des dividendes croissants, année après année. Ils sont particulièrement généreux du point de vue de leurs distributions, grâce à un traitement fiscal spécial. La stabilité de leur modèle économique, leur indépendance par rapport au marché des actions et des devises, ainsi que le revenu attractif qu’ils génèrent, peuvent représenter une opportunité intéressante pour des (futurs) rentiers. La forte volatility des REITs et des MLPs peuvent par contre ne pas convenir à la personnalité de tous les investisseurs.

The table below summarizes the qualities of each strategy:

Objective	GDG	Ex-US	S&D	R&M
Portfolio funds	*****	****	**	*
Income	***	****	****	*****
Dividend growth	*****	*****	*****	***
Currency risk protection	***	****	****	*****
Market risk protection	***	***	****	****
Emotional risk protection	****	*****	**	*

* 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.