The Prudent Investor

I spoke with some people towards the end of last year and made the case that 2008 would be a down year for the market. There is no need to go into the reasons here, but the important thing is that this portfolio needs to have a little protection in the form of dividends. Dividends allow one to be more patient with a company when the stock price is not appreciating at rate we would like to see.

The only real problem with relying on dividends is that the company can always cut them. This means that one might purchase a company for the purpose of receiving the dividends, then have their purchase undermined when the company decides to slash the dividend. It would be nice to have some protection against that happening.

Fortunately, this is a situation where a company’s past decisions can bring one some comfort – although a company can slash its dividend at any time, if they have a history of increasing dividends over the course of several decades, then chances are that they will not begin slashing now. The only problem comes with finding those companies with such consistent records.

Fortunately, Dave Fish of MoneyPaper has compiled a list of U.S. Dividend Champions that is regularly updated and located at dripinvesting.org/tools/tools.htm.

So the next company that will be selected will come from this list. The list currently contains about 140 companies that have increased dividends over at least the past 24 years, which is quite an impressive record, and one that gives the investor confidence that the dividends will continue in the future.

Next post I will begin to eliminate some of the companies that obviously do not fit the needs we have for selection into this portfolio.