Investing Nirvana?

Dividend Growth Investing = Investing Nirvana?

22/7/2016

Apologies for the lack of posts recently, have been following all the economic and political fall out from BREXIT but not been doing that much in the market. One thing I did come across recently though was an interesting presentation about the merits of dividend growth investing which as you know is something I believe in.

I attach the presentation at the end of this post and although it is mostly based on US data I believe the findings it highlights are relevant to overseas markets as shown in the graphic from the presentation below which looked at this. As you can see it suggests that focussing on those stocks that pay a growing dividend and avoiding those that pay no dividend is a good idea. Those that offer growing dividends seem to offer higher returns at lower risk which is ultimately what everyone should be aiming for.

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Other interesting observations included a look at levels of dividend cover which is something else I also focus on in addition to dividend growth. This found that those with middling levels of cover or the inverse as they looked at payout ratios delivered the best returns. So in terms of payout ratios it was the 3rd and 4th Quintiles which did best while Quintiles 1 (lowest payout ratio) and Quintile 5 (highest payout ratio) did worst. Interesting that those with the lowest payouts did consistently badly - maybe this is to do with them being growth companies and retaining capital which subsequently got wasted perhaps?

While by taking a very long term view and looking at rolling 15 year returns for US stocks they also demonstrate that dividend paying and those that grow their dividends have outperformed 100% of the time, although maybe that is just data mining for marketing purposes? Having said that though I think focussing on this type of stock for the long run will serve you well & don't forget that is exactly the type of stock that the Compound Income Scores seeks to identify.

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Finally I saw today that Institutional investors have recently raised cash to record levels and reduced their equity exposure which probably helps to explain some of the volatility we have seen this year. However looking at one final graphic from the presentation suggested that at the end of last year that equities were not that over valued based on dividend yields versus their 20 year history.