A Dividend Aristocrat is any S&P500 company that has increased its dividend on an annual basis, without interruption, for 25 years or longer. Standard & Poors tracks performance and maintains an ETF (SPY) made up of these companies, so it is reasonable to expect that any company that achieves this benchmark will strive to continue to maintain this ranking.
HCP announced last week that it was increasing its dividend for 2014, establishing a 29 year record. Now, my reader will recall that my retirement portfolio is composed of 80% TSX60 Dogs, and 20% US-based high yielding Dividend Aristocrats or Champions. The Dogs method is a simple, time-proven method that requires nothing more than a calendar (for anniversary re-investments and re-balancing) and a spreadsheet (to find the 5 top-yielding issues), so it should be no surprise that, by it’s nature, my US stock selections should cause me more anxiety. HCP is that case in point.
At the time that I constructed my portfolio during the November 2013 market madness, I made certain allowances in applying my rules, knowing full well that if the fundamentals changed, the composition of my portfolio would be affected. In applying my rules to the selection of HCP, I allowed the question of demographics to override a number of criteria:
- yield is greater than 3% – +5%
- dividend growth exceeds 7% – 3.7%
- consecutive dividend growth record greater than 10 years – 29 Yrs
- dividend payout is less than 60% of FCF – N/A
- PE should be around the 10 year average – N/A
- 5-yr CAGR + Yield = target (12%) Total Return – 19%
So, kudos to HCP for the increase, but the 3.8% increase was underwhelming, and the stock’s response to the recent tapering exercises is certainly disconcerting. As I have documented elsewhere in this blog, getting too smart (demographics, anyone?) will eventually bite me in the ass and so, I expect to pay for my stake in HCP and the healthcare demographics play.
This retirement gig is new to me and relying solely on my investment acumen is a very foreign experience; hopefully between my Investment Business Plan, stated goals and mission, and my rules, I will prevail. In the meantime, dear reader, stay tuned for some high-fives and no small amount of hair-pulling and teeth-gnashing (both to be provided as needed).