Wednesday, March 27, 2024

Blind Spots and Continuous Improvement

As an investor, I am aware that I have a lot of blind spots. Someone with a glass half full outlook on life might say that I have a lot of room for improvement though.

I do believe that successful investment is about continuous improvement, which is only possible through active learning. That includes reading books, articles, journals but most importantly also doing the heavy lifting and actually investing money. It’s very helpful to have a process that helps in most aspects of the investment process:

1. Identify the population

2. Define the traits you are looking for

3. Define the entry criteria that would trigger an investment

4. Define exit criteria that would cause an investment to be sold

5. Manage risk

Naturally, I like to study other investors and their strategies. At least based on what I see publicly.

I recently saw that Eli Lilly (LLY) has become one of the largest companies in the US. A lot of investors are salivating over the past 15 years of returns. Yet I doubt most are even aware that this is a dividend stock, and/is/has been a dividend growth stock as well.



The question I have on my mind is: How would one have identified the company as an investment 15 years ago, and would they have actually bought it? 

Naturally, I remembered how Eli Lilly was a dividend aristocrat about 15 years ago or so, with a 40+ year history of annual dividend increases under its belt. The stock sold for 8 times forward earnings in 2009 and yielded about 6%. It had suffered a terrible decade, as earnings were largely flat, and the stock price had nosedived by 60% from its highs in the year 2000. Naturally, the P/E ratio had shrunk significantly too – from 30 - 40 in late 1990s to 8 in 2009. 

You may like my review of Eli Lilly from 2009, back when things were at their bleakest it seems like.

An investor who bought in 2009 for the dividend and stayed, did pretty well. They were getting paid a generous dividend to hold on to a dividend aristocrat. Those sleepy companies can sometimes also surprise on the upside, by uncovering a blockbuster drug in their pipeline. It’s like having your cake and eating it too. It’s not so easy to predict years in advance what or whether the pipeline that takes billions of R&D will produce a blockbuster drug or a series of failures. Still, it’s a nice option on the future, while getting paid to wait.

The company did not really show growth in earnings per share between 1999 and 2009 however. So this shows like it was an unlikely candidate for purchase at the time.

There were a lot of other candidates in 2009 that have done well, whose earnings patterns seemed much more promising (and stayed promising). Those include the likes of Sherwin-Williams, S&P Global (Then McGraw Hill), Cintas, ADP, Grainger, etc. You may like this article from 2008, called "Best Dividend Stocks For the Long Run"

Earnings per share for Eli Lilly were largely flat from 1999 to 2016. The stock is highly unlikely to have been picked up by my process too. Right now it’s simply overvalued.




The company was a dividend aristocrat however. But the dividend growth indexes like the Achievers and Aristocrats that would have held it through 2010 actually sold it at the end of 2010/early 2011. The company had become a dividend achiever in 1977 and a dividend aristocrat in 1992. 

However, the company was dropped from the dividend aristocrat and dividend achiever indices in 2011, after it failed to increase dividends in 2010. This means that all the passive dividend ETFs holding it were forced to sell the company. 

Despite not raising dividends between 2010 and 2014 however, the company never cut them. It started raising them again in 2015. So someone who had bought it because it was a dividend achiever/dividend aristocrat, and didn’t sell due to the dividend freeze would have come out ahead on this one. Of course, they could have also bought it much earlier, such as the 1990s for example. However they would have had to hold through the 2000 – 2009 period, which would have tested their conviction.

The only ones that probably owned it in 2009 and are likely to have owned it through today are your basic index funds on S&P 500 and/or Total Market. Of course, they also held it during the lost decade of 1999 – 2009 as well, when returns were negative.

It’s actually fascinating to study those index funds, because they take long-term buy and hold investing to the next level.

They make a lot of bets, and then they stick to them through thick or thin. They allow the power of compounding to do its magic, and basically never sell. (or at least rarely do).

This allows the best investments to mushroom, and deliver the lions share of profits for truly long-term investors. As we have witnessed before, constant tinkering and turnover are counter-productive and costly, as they detract from returns due to fees, costs, taxes and opportunity costs (e.g. selling winners to buy losers).

As a result, a small number of companies tend to drive total returns forward. The losers become a smaller and smaller portion of the portfolio. Even if they went to zero, there are some huge winners that not only pay for them, but also turn a net profit overall.

This is basically the Pareto Principle in action.

Nobody knows in advance for sure which those winners would be. This is why it’s important to hold that diversified basket through thick or thin, and just stay invested. Second guessing yourself, and trying to pick the winners from the losers is definitely hard. Mostly because it is very hard to predict for sure. Predictions are hard, especially the ones about the future..

Naturally, this gets you thinking. If you missed out on these exceptional winners, your portfolio would likely deliver substandard performance.

Missing out could happen in two major ways actually.

One of the ways you could miss out is because you didn’t buy the stock. Perhaps due to omission, perhaps due to your process missing something or perhaps because the stock did not look investable then. Perhaps it became investable later, but by that time you either missed it because you weren’t monitoring it or because by the time it became investable the stock price was already high enough and recovered to reflect that.

Another of the ways you could miss out is because you sold the stock. 

After studying index funds for a while, I’ve come to the conclusion that it does make sense to hold a lot of companies by placing small bets on them and then holding them. This lets you own a lot of companies, and you would likely profit overall, without even knowing or having to need to have a crystal ball. You have small turnover, which is mostly driven by companies being delisted due to acquisitions/mergers/bankruptcies/delisting (at least looking at the broad total market index that is). Just buy and hold. By not caring about valuation as well, they are less likely to pass on to promising companies merely because they sell at say 25 times forward earnings and not 20 times forward earnings. On the flip side of course is that they may end up overpaying for future growth, dearly. Of course there are trade-offs with everything. The issue of this buying the whole haystack theory is that you have a lot of good businesses mixed in with a lot of bad businesses as well.

Of course, you do not need to buy every company to make money in equities. Having a process to select a group of quality companies, and hold on to them through thick or thin can deliver good results.

This brings us back from the world of broad index funds to the narrow world of dividend funds.

High turnover is one issue with dividend ETFs.

They actually sold out of Eli Lilly in 2011, which basically reduced their returns. 

My lessons from this exercise is to try to work and design portfolios that hold a lot of companies, which rarely sell.

When it comes to the dividend growth investing universe, it apparently takes sense to take a lot of bets, and stay invested with them. An improvement over regular dividend ETFs is to not sell if a company fails to raise dividends. However, it is still likely a good idea to sell if a company cuts/suspends dividends. If a company is acquired, one has to sell regardless.

Of course, that doesn’t mean you should ignore quality as well. Taking lots of bets is fine, but at some point there are also companies that are not doing well financially. They may turn around, or not. But speculating when the date is not supporting speculation is still speculation.

That being said, no process is going to be perfect.


There is always going to be room for improvement.


Sunday, March 24, 2024

Four Dividend Achievers Rewarding Shareholders With Raises

I review the list of dividend increases as part of my monitoring process. This exercise helps me monitor existing holdings. It also helps me identify companies for further research.

I typically focus on the companies that have managed to increase annual dividends for at least ten years in a row.

There were 11 companies that increased dividends last week. There were four companies that raised dividends last week, which have also managed to increase dividends for at least ten years in a row. The companies include:


JPMorgan Chase & Co. (JPM) operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM).

JPMorgan Chase increased quarterly dividends by 9.50% to $1.15/share. This is the 14th consecutive annual dividend increase for this dividend achiever.

Over the past decade, the company has managed to grow dividends at an annualized rate of 11.53%.

Between 2014 and 2023, the company managed to grow earnings from $5.33/share to $16.25/share.

The company is expected to earn $15.96/share in 2024.

The stock sells for 12.32 times forward earnings and yields 2.33%.


Globe Life Inc. (GL) provides various life and supplemental health insurance products, and annuities to lower middle- and middle-income families in the United States. The company operates in four segments: Life Insurance, Supplemental Health Insurance, Annuities, and Investments. 

Globe Life increased quarterly dividends by 6.70% to $0.24/share. This is the 19th consecutive annual dividend increase for this dividend achiever.

During the past decade, the company managed to grow dividends at an annualized rate of 7.21%.

Between 2014 and 2023, the company managed to grow earnings from $4.09/share to $10.21/share.

The stock sells for 10 times forward earnings and yields 0.82%.


Independent Bank Corp. (INDB) operates as the bank holding company for Rockland Trust Company that provides commercial banking products and services to individuals and small-to-medium sized businesses in the United States. 

Independent Bank increased quarterly dividends by 4% to $0.57/share. This is the 14th year of consecutive annual dividend increases for this dividend achiever.

The company has managed to grow dividends at an annualized rate of 9.72% over the past decade.

Between 2014 and 2023, the company managed to grow earnings from $2.50/share to $5.42/share.

The stock sells for 11 times forward earnings and yields 4.43%.


CareTrust REIT, Inc. (CTRE) is a self-administered, publicly-traded real estate investment trust engaged in the ownership, acquisition, development and leasing of skilled nursing, seniors housing and other healthcare-related properties. 

CareTrust REIT increased quarterly dividends by 3.60% to $0.29/share. This is the tenth consecutive annual dividend increases for this newly minted dividend achiever

The REIT has managed to grow distributions at an annualized rate of 6.90% over the past five years.

The stock sells for 15.83 times forward FFO and yields 4.83%.

Relevant Articles:

- 16 Dividend Growth Companies That Increased Dividends Last Week





Monday, March 18, 2024

Schwab Dividend Index 2024 Annual Reconstitution

The Dow Jones U.S. Dividend 100 Index is designed to measure the performance of high-dividend-yielding stocks in the U.S. with a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios.

The index universe is defined as the constituents of the Dow Jones U.S. Broad Stock Market Index, excluding REITs.. Source:  S&P Global

Stocks must pass the following screens:

• Minimum 10 consecutive years of dividend payments

• Minimum FMC of US$ 500 million

• Minimum three-month ADVT of US$ 2 million

Stocks that pass all screens are ranked by dividend yield. The top half are eligible for inclusion. 

Constituent selection is as follows:

1. The eligible securities are ranked by each of four fundamentals-based characteristics:

• Free cash flow to total debt: Annual net cash flow from operating activities divided by total

debt. Companies with zero total debt are ranked first.

• Return on equity: Annual net income divided by total shareholders’ equity.

• IAD yield

• Five-year dividend growth rate 

2. The four rankings are equal weighted to create a composite score, and the eligible securities are
ranked based on this composite score.

3. The 100 top-ranked stocks by the composite score are selected to the index, subject to the
following buffer rules that favor current constituents during the annual review.

• The constituent stocks will remain in the index as long as they are among the top 200
rankings by the composite score.
• Non-constituent stocks are added to the index based on their rankings until the
constituent count reaches 100.
• If two non-constituents have the same composite score, the non-constituent with the
higher dividend yield will be selected.


Stocks in the index are weighted quarterly, based on a capped FMC weighted approach. No single stock can represent more than 4.0% of the index and no single Global Industry Classification Standard (GICS®) sector can represent more than 25% of the index, as measured at the time of index construction, annual rebalancing, and quarterly updates. 

The index is subject to a daily weight cap check. If the sum of stocks with weights greater than 4.7% exceeds 22%, the index is re-weighted using a quarterly weighting method.


The index is the benchmark used by the popular dividend ETF the Schwab US Dividend Equity ETF (SCHD). It is rebalanced once per year. This years re-constituting just happened. I actually reviewed the ETF in 2016, and didn't hate it. However I did not buy it then because I did not like the high turnover.

The column on the left shows the 24 companies that were removed. The column on the right shows the 24 companies that were added.


Note I created this list myself by comparing the holdings in the Schwab Dividend ETF today at the Schwab website, versus the holdings int he Schwab Dividend ETF as of Feb 29, available on the Fidelity Study.

It looks like the turnover accounted for something like 24% - 25% of the portfolio weightings. The largest components being taken out include Broadcom (AVGO) with a 5.07% weight, Merck (MRK) with a 4.69% weight and ADP (ADP) with a 3.09% weight.

On a side note, you do not get taxed on those gains from the re-balancing within an ETF as an ETF shareholder. You also do not get any deductions on losses within an ETF from re-balancing either however.

In general I dislike high turnover, because it means that this ETF holds stocks on average for 4 - 5 years only. The number of companies I am investing in is not stable, so in effect it is as if I am investing into a trading strategy almost. I prefer to hold a more passive approach to investing, with low turnover and rarely selling anything. I also prefer to build my own portfolios at home, one company at a time. That way I can control:


1. What companies go in the portfolio
2. The entry valuations
3. Portfolio weights
4. Holding period/Turnover
5. Cost


Whether you should buy individual dividend growth stocks or dividend growth etf however is another trade-off you have to accept for yourself.

Relevant Articles:



Five Dividend Growth Companies Increasing Dividends Last Week

I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me monitor existing holdings but also identify companies for further research. I usually focus on the companies that have managed to increase dividends for at least ten years in a row. 

A long history of annual dividend increases does not happen by accident. It is usually a result of a strong business that generates excess cashflows. But as we all know, past performance is also not always an indication of future results.

This exercise simply puts companies on my list for further research. Afterwards, I review each company briefly, before determining if I should pursue the idea further or set it aside.

Over the past week, there were 23 companies that increased dividends to shareholders in the US. Five of these companies have managed to increase dividends for at least ten years in a row.


Colgate-Palmolive Company (CL)  manufactures and sells consumer products in the United States and internationally. It operates through two segments: Oral, Personal and Home Care; and Pet Nutrition.

The company increased quarterly dividends by 4.20% to $0.50/share. This is the 61st consecutive annual dividend increase for this dividend king. Over the past decade, the company has managed to increase dividends at an annualized rate of 3.68%.

Between 2014 and 2023 the company grew earnings slightly from $2.36/share to $2.77/share. The company is expecting to earn $3.49/share in 2024.

The stock sells for 25.35 times forward earnings and yields 2.26%.


Shoe Carnival, Inc. (SCVL) operates as a family footwear retailer in the United States.

The company increased quarterly dividends by 12.50% to $0.135/share. This is the 12th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 13.56%.

The company has managed to grow earnings from $0.66/share in 2014 to $4/share in 2023. The company is expected to earn $2.70/share in 2024.

The stock sells for 12.06 times forward earnings and yields 1.65%.


Steel Dynamics, Inc. (STLD) operates as a steel producer and metal recycler in the United States.

The company raised quarterly dividends by 8.20% to $0.46/share. This is the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 14.15%.

Between 2014 and 2023, the company managed to grow earnings from $0.68/share to $14.72/share.

the company is expected to earn $10.59/share in 2024.

The stock sells for 13 times forward earnings and yields 1.33%.


UDR, Inc. (UDR), an S&P 500 company, is a leading multifamily real estate investment trust with a demonstrated performance history of delivering superior and dependable returns by successfully managing, buying, selling, developing and redeveloping attractive real estate communities in targeted U.S. markets.

The company increased quarterly dividends by 1.20% to $0.425/share. This is the 14th consecutive annual dividend increase for this dividend achiever. Over the past decade, this REIT has managed to grow dividends at an annualized rate of 5.89%.

UDR grew FFO/share from $1.58 in 2014 to $2.46 in 2023.

This REIT is expected to generate $2.45/share in FFO in 2024.

The stock sells for 15.14 times FFO and yields 4.57%.


Williams-Sonoma, Inc. (WSM) operates as an omni-channel specialty retailer of various products for home.

The company increased quarterly dividends by 26% to $1.13/share. This is the 18th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 11.71%.

Between 2015 and 2024, the company has managed to grow earnings from $3.30/share to $14.71/share.

The company is expected to earn $15.13 in 2024.

The stock sells for 18.76 times forward earnings and yields 1.59%.


Relevant Articles:

- 17 Dividend Growth Stocks Raising Shareholder Distributions




Wednesday, March 13, 2024

The Return of the Dividend

A pattern of steady dividend payments and dividend increases is only possible if a business can generate enough cashflows to support operations and expansion, while also generating torrents of excess free cash flows.

That dividend provides signaling value to shareholders that there are indeed solid and dependable cashflows to support it. Those cashflows are also supported by the business.

In fact, in the old days (prior to the 1980s), investors would not touch a stock that didn't pay a dividend. The idea was that a company which does not pay a dividend simply cannot afford to pay it. It was a speculative company that typically didn't earn much money.

Since the days of the 1990s and the tech bubble, investors have been shunning dividends, and focusing only on the share price. It takes a few bear markets to remind investors that trees do not grow to the sky. 

At some point, a stable dividend generated from a good business can be a major calming force during a bear market or an extended flat market. For a company that generates a ton in cashflows, it makes little sense not to pay a dividend. Dividends provide management with focus on the projects with the highest return on investment. Having that focus and a hurdle rate, coupled with a regular commitment to shareholders, makes it less likely that management teams would do something silly with the money. A stable and growing dividend also signals maturity and stability in cashflows. 

When management teams are swimming in cash, they could focus on projects of dubious value, get more perks like corporate jets, and other silliness. That dividend provides focus and discipline to the capital allocation process.

Over the past several weeks, there were several notable dividend initiators.

Those include:

Meta (META), which initiated a quarterly dividend of $0.50/share in February.

Booking Holdings (BKNG), which initiated a quarterly dividend of $8.75/share in February.

Salesforce.com (CRM), which initiated a quarterly dividend of $0.40/share in February.


It would be interesting to see if these companies manage to grow those dividends from here as well.

It seems as if companies are finally wisening up and sharing their generous cashflows with shareholders.

I would welcome seeing more tech juggernauts that can afford to pay a dividend actually starting to pay dividends. One that's long overdue is Alphabet (GOOG).

It would be interesting to see if number of payers on the S&P 500 increases as well. These are the trends we are witnessing as of this year:


On a side note, this increase in number of dividend paying companies, particularly in the tech sector, is not new. We saw that a little over a decade ago. Please check the relevant articles below:


Relevant Articles:



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