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Dividend Update June 30, 2014

Posted by shaferfinancial in Finance.
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As regular readers know, I have been pursuing a dividend growth strategy for a little over 4 years at this point. When I started, I had 80% of my portfolio in a non-dividend payer, Berkshire Hathaway. Now I have about 50% in Berkshire. I collect annual dividends that are 25% of my expected need at retirement at this time. My yield on cost for the dividend growth part of my portfolio is over 13% at this point. Current yield is 11%.

Some people will look at that 11% number and think I am investing in extremely risky stocks. Nothing can be further from the truth. Of the stocks I invest in, only 1 has had a dividend decrease. That was during 2008 and the height of the recession. One thing that I do point out that with most of these stocks, I expect a dividend decrease when profits are bad. They are set up to maximize dividend payments, and therefore like any business owner, if things go bad I expect to get less money. This is troublesome for American’s who have been trained to think of dividend decreases as a declaration of failure. Therefore most American companies keep their payouts low to avoid this. In retirement this could be a problem, but for accumulation, I see no problem with this.

As I go forward I will judiciously sell my Berkshire when it is fairly valued or over valued and buy more dividend payers. I think my goal over the next 5 years is probably to get down to 20-25% in Berkshire, but I am not stuck on that percentage if the environment changes.

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Comments»

1. bericm - July 3, 2014

Good for you for getting your hands on Berkshire; I’ve had my eye on it since it was ~$22K. At that time it would have been my sole holding and 100% foreign content in an RRSP (Canadian, eh) would have been against the rules. By the time the rules changed, I was more concerned with Buffett’s succession planning.

Today, I, like you, worry about the dividend stream and the growth thereof. Go Walgreen!! 🙂


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