When I was 5 years old in the mid-1960s, I used to walk home from school with my best kindergarten buddy, Kathy, and her mom. After they dropped me off, I'd go to the back of the house, grab the bottles that the milkman had left in the steel case on the back stoop, enter through the unlocked door, put the milk in the fridge, make myself a snack, and sit down to watch cartoons on our 19-inch black-and-white Zenith TV.
Both of my parents worked and my older brothers were doing whatever - probably catching cooties from girls! - so I was a latchkey kid before anybody had ever used the term.
I guess I was a pretty mature, intelligent and talented 5-year-old, but I won't bore you with details of all I could do back then. I mean, who wants to hear about a little kid who can play Mozart's Piano Sonata No. 11, slam-dunk a basketball and ace Advanced Calculus?
Aw, who am I kidding? I once got Trix cereal stuck so far up my nostrils that I had to be taken to the Emergency Room. Another time, I almost burned down the house because I left a lit candle on the arm of our black vinyl sofa. Oops!
One thing for sure: I was nowhere near as accomplished as the 5-year-old I'm writing about today: The Dividend Growth 50.
My real-money, real-time, buy-and-hold, passive-income portfolio has racked up a total return of nearly 70% since it was born, and Year 5 was its best ever.
From Dec. 16, 2018, to Dec. 16, 2019, the portfolio's total return was 22.8%.
Truth be told, an investor almost would have had to try to lose money in 2019, as the S&P 500 Index is poised to have its best year since 2013.
Heck, given all that's been going on - HBO aired TV's most talked-about show; the U.S. House of Representatives impeached the president; Tiger Woods had the golf world buzzing; and the market has been a raging bull - one could be forgiven for thinking it was the late-'90s all over again.
As well as things went for the Dividend Growth 50, its total return trailed that of the Vanguard S&P 500 ETF (VOO); the same day I funded the DG50, I also bought about $500 worth of VOO to serve as a benchmark.
That result is not very surprising. When the market is rolling, a portfolio filled mostly with "boring" dividend-growing stocks often will lag a little behind. Only a year ago, as the market was wrapping up a poor 12-month stretch, I was writing about how the DG50 eked out a "victory" over VOO.
VOO has "won" 3 of the 5 years to date, and it has the edge in total return over the entire 60-month stretch.
Again, that's hardly stunning given the bullishness of the market. Eventually, there will be another recession; when that happens, it's hard to imagine the DG50 not outperforming the S&P 500, perhaps by a wide margin.
Besides, many (if not most) of my fellow Dividend Growth Investing practitioners prioritize building a reliable, ever-increasing income stream. Part 2 of this series, which will be published in early January, will focus on the DG50's outstanding income growth.
Still, many (like me) do want to see the overall value of their portfolios grow, and that's why I take an annual look at the DG50's total return on each anniversary date.
The Big Winners
Microsoft (MSFT) has not merely beaten the S&P 500 each of the last 5 years - the software and cloud-services behemoth have crushed the overall market. Even knowing that the 276% total return of the Dividend Growth 50's MSFT position is still eye-popping.
Data by YCharts
Tech companies occupy the first three spots on the DG50's 5-year chart, with Visa (V) returning 199%, and Apple (AAPL) right behind at 179%.
It wasn't all that long ago that Microsoft was seen as a stagnant, old-tech software business. Its attempts to innovate often resulted in the company being part of punchlines: Zune, "Bob" and Cortana, anybody? Then Satya Nadella replaced Steve Ballmer as CEO the same year the DG50 was launched, Nadella shifted focus to the cloud (especially Azure), and it's been an incredible ride.
Is Target (TGT) headed for a similar turnaround story? The big-box retailer certainly is off to a heck of a start. Practically left for dead after its badly botched (and short-lived) foray into Canada, a security breach that cost billions and a weak initial response to e-commerce trends, Target has gained 92.7% the last 12 months - easily the highest of any DG50 component.
Yahoo Finance just named Target its 2019 Company of the Year, stating: "In the minds of some top Wall Street analysts, Target is a retail fairy tale: Strong in-store sales, surging online volumes, earnings day blowouts and a skyrocketing stock price."
They aren't lying about the analysts. Here is a graphic from Fidelity.com illustrating the enthusiasm of those who follow Target:
Qualcomm (QCOM) is another that had been struggling, as the chipmaker's competition was intense and litigation was piling up. But as some good legal news drifted in, and folks started anticipating the company's outsized role in the coming 5G wave, the Dividend Growth 50's QCOM position went from an 8.5% loss a year ago to a nearly 60% gain this time around.
Then there is General Electric (GE), whose 63.5% total return for the year ending Dec. 16 might be more impressive had the company's stock price not bottomed out after losses of 42% and 59% the previous two years. Sorry, but this skeptic will take a big "we'll see" approach going forward.
Data by YCharts
The DG50 Story
In the fall of 2014, inspired by an article I had written about the Nifty Fifty of the 1970s, I asked 10 fellow Seeking Alpha contributors to choose 50 companies each for a new list that I hoped would be even niftier.
The panelists - Chowder, David Crosetti, Eli Inkrot, Eric Landis, Tim McAleenan, Miz Magic DiviDogs, ScottU, David Van Knapp, Bob Wells, and the late, great David Fish - combined to select 163 stocks, with the 50 leading vote-getters forming what I first dubbed the New Nifty Fifty.
About two months later, on Dec. 16, 2014, I funded the portfolio, investing about $500 in each company - overall, more than $25,000 of my hard-earned money. I renamed it the Dividend Growth 50, which more accurately reflects what the portfolio represents.
It has turned out to be a popular Seeking Alpha fixture, with the original and its follow-ups generating tens of thousands of comments over the years. Panelist Eric Landis has compiled all the articles on his DGI For The DYI blog.
Without further ado, here is the total-return data for every company in the Dividend Growth 50 (listed in order of 5-year performance):
Notes
- * Baxter (BAX) in 2015 spun off Baxalta, which in 2016 was acquired by Shire, which in 2019 merged with Takeda Pharmaceuticals (TAK) of Japan. For comparison sake, Baxter's percentage in the 5-YEAR INCREASE column reflects the combined value of the DG50's BAX and TAK positions ($1,164.03) on 12/16/19. (The transactions also resulted in $222.90 in cash coming into the DG50; that was used to purchase three additional BAX shares in 2016 and two in 2019, per portfolio rules.)
- *** HCP was renamed Healthpeak Properties (PEAK) in 2019. During its time in the DG50, the company had M&A activity that generated $47.65 cash. Also, after the name change, I did not realize I needed to request dividend reinvestment again, so the $5.30 dividend paid on Nov. 19 showed up in the account as cash rather than having bought more PEAK. For comparison sake, the percentage in the 5-YEAR INCREASE column reflects the combined value ($517.83) of all cash PEAK has generated.
- + Due to M&A activity, the WEC Energy (WEC) and Kraft Heinz (KHC) positions produced cash for the portfolio in 2015. That was used to buy one additional share each of KHC and WEC, per portfolio rules.
- ++ Due to corporate activity, the General Electric position generated $8.87 cash for the portfolio in 2019. For comparison sake, the percentage in the 5-YEAR INCREASE column reflects the combined value ($265.47) of all cash GE has generated.
- All of the above corporate activity is reflected only in the 5-YEAR INCREASE percentage column so I could make accurate total-return comparisons to previous years. The dollars shown in the VALUE 12/16/19 column represent the actual value of each position at market close Dec. 16, 2019.
- ## Starbucks (SBUX), Aflac (AFL) and Visa had stock splits during the past 5 years; totals in the Shares Bought column are split-adjusted.
- Free trades were received for opening the account with the brokerage. Total commissions paid to date = $12.90; that was for the 2016 and 2019 BAX purchases. (The brokerage now offers free trades for everybody, so there should be no commissions in the future.)
- Per portfolio rules, dividends were automatically reinvested back into each position (except for PEAK, as stated in an earlier note).
Observations
Seventeen DG50 components have exceeded the benchmark Vanguard ETF's 76.4% total return over the 5-year period: Microsoft, Visa, Apple, Starbucks, Baxter, WEC Energy, Aflac, Target, NextEra Energy (NEE), McDonald's (MCD), McCormick (MKC), Lockheed Martin (LMT), Automatic Data Processing (ADP), Deere (DE), Becton Dickinson (BDX), Realty Income (O), Caterpillar (CAT).
Although big tech names rule, industrials - represented by Lockheed, Deere, and Caterpillar, and even GE this past year - have done well. Longtime standout 3M (MMM), however, experienced a significant loss for the second consecutive year, bringing its 5-year total return all the way down to 21%.
Clorox (CLX), Verizon (VZ) and Johnson & Johnson (JNJ) each underperformed this past year to fall behind the S&P 500 after having outgained the index during the DG50's first 4 years.
Pepsi (PEP) has dominated Coca-Cola (KO) since the portfolio was created, with Pepsi enjoying a 10-point advantage. I own both in my personal portfolio, but I have long preferred Pepsi due to its popular salty snack division.
Data by YCharts
Only 5 companies are underwater after 5 years, with Kraft Heinz and Walgreens Boots (WBA) turning red this past year. KHC has been one of Warren Buffett's rare horrendous investments. WBA has been hurt by e-commerce on the retail side, and by competition and worries about legislation on the drug-distribution side.
Sharp-eyed readers no doubt noted that the DG50 actually has 51 companies. That's been the case ever since Baxter spun off Baxalta, with Takeda now No. 51. Just as the Big Ten didn't change its name when it grew to 11 and eventually 14 schools, I'm not changing this portfolio's name just because a few companies might come and go.
Through The Years
I thought it might be thought-provoking to look at each position's annual total return these last 60 months. Companies are listed in order of the most recent year's performance:
Observations
MSFT and WEC were the only positions to record double-digit growth in total return every year. Those two and BAX were the only three to beat VOO every year. WEC and BAX have been boosted by extra shares being bought with cash that came into the portfolio through M&A activity. Eight others experienced gains all four years: NEE, ADP, AFL, BDX, O, MKC, MCD, VZ.
Many growth investors disrespect utilities, but this portfolio's positions in that sector have performed quite a bit like growth companies. NextEra and WEC have beaten the overall market over the 5 years, and Southern (SO) is gaining fast after posting 37% total return these last 12 months. Dominion (D) is lagging a little but has an outstanding dividend yield.
Data by YCharts
AT&T (T) has excelled in 2019, returning nearly 36% just one year after being one of the DG50's big losers. No longer just a utility-like cellphone-service company but now more of a media conglomerate, T has been helped by its relatively recent Time Warner acquisition.
General Mills (GIS) also appears to be benefiting from a major acquisition, as its big-money gamble on Blue Buffalo pet food is starting to help the bottom line. The company just released its latest earnings report, and its pet segment was highly profitable. Humans spare no cost on their puppies and kitties!
In addition to T, GIS, TGT, QCOM, SO and even GE, other DG50 positions that posted market-beating total returns after having finished in the red the previous 12 months: AAPL, HSY, LMT, WMT, KMI, EMR, UTX.
Finally, here is how the Dividend Growth 50's total return has compared annually to VOO and to two other real-money "benchmark" investments I made back on Dec. 16, 2014: Vanguard Dividend Appreciation ETF (VIG) and Vanguard Dividend Growth Fund (VDIGX):
I have been especially impressed with VDIGX, which has beaten the DG50 in 4 of the 5 years (and has outperformed VOO in 3 of the 5). I bought a little VDIGX for my personal portfolio a few years back, and I have not been disappointed. The mutual fund has been around for almost 30 years, it is well-managed, it has a low expense ratio, and it is a fine option for those who don't want to mess with individual stocks.
Conclusion
Five is a great age for a kid. He or she is old enough to vocalize opinions, to explain emotions, to compete athletically, to play musical instruments, to imitate others, to make (and understand) jokes, to express sympathy, even to have a sarcastic streak.
Basically, to be small versions of adults - only more fun, more genuine and more interesting!
These first 5 years also have been interesting for the Dividend Growth 50. It has performed well relative to the bullish overall market, even as it has served its mission of growing income at a very healthy level. Occasionally it misbehaves - Kraft Heinz, go to your room! - but it's genuine and fun, just the same.
Remember: Neither I nor the panelists who selected the companies have ever recommended that investors replicate this portfolio. From the start, the idea of the DG50 always has been to present stocks as candidates for consideration and further research, as well as to stimulate discussion about DGI and portfolio-building.
This article was written by
Mike Nadel
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I contribute to the Investing Group , along with Dave Van Knapp, Jason Fieber, Greg Patrick, and Christian Phillips.
I manage two public, real-money endeavors – the Income Builder Portfolio and the . My Dividend Growth 50 project was a popular fixture on Seeking Alpha for years.
A retired newspaper sportswriter, I began writing about investing in 2012. I graduated with a B.A. in Journalism from Marquette University, where I met my wife, Roberta. We live in Charlotte, N.C.
Analyst’s Disclosure: I am/we are long ALL STOCKS MENTIONED. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
