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Dividend Challengers

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There are huge numbers of investors who are looking for an investment portfolio that has a good balance of growth, income, and security. I will be doing a short series on stocks that fit certain dividend criteria.

For this portfolio, we will be looking at Dividend Challengers.


What are Dividend Challengers?

Dividend Challengers are U.S. public companies that have raised their dividends for 5 or more consecutive years, but less than 10 years.

As a subset of dividend-paying companies, they represent a category of stocks with a moderately established history of consistent dividend growth.

While they haven’t achieved the status of Dividend Achievers or Dividend Aristocrats (companies with even longer track records of dividend increases), they still hold significant appeal for income-focused investors and those seeking a balance between income and growth.

Why invest in Dividend Challengers, what are the benefits?

Income Growth Potential

Dividend Challengers represent a class of companies that have consistently increased their dividends for at least 5 years but less than 10 years. While they may not have the extended track record of Dividend Achievers, they still offer a reliable source of income. For income-focused investors, Dividend Challengers are an appealing option.

The key advantage lies in their potential for continued dividend growth. By consistently increasing dividends, these companies demonstrate a commitment to rewarding shareholders. As they advance toward the 10-year mark, investors can expect the possibility of higher income over time, which is particularly valuable for long-term financial planning.

Capital Appreciation Opportunities

Dividend Challengers often maintain stable financial positions and solid growth prospects. While they may not be as established as Dividend Achievers, they can still offer capital appreciation potential. As the company’s dividend history continues to grow, investors can benefit from both dividend income and stock price appreciation.

Over time, this dual benefit can contribute to the overall growth of an investment portfolio. Dividend Challengers, as dividend growth stocks, provide a valuable balance between income and the potential for wealth accumulation.

Moderate Risk Profile

Companies that qualify as Dividend Challengers have demonstrated the ability to sustain dividend growth for an extended period, indicating financial strength and management confidence. While they may not have the decades-long track record of Dividend Aristocrats or Dividend Kings, they still possess a certain level of resilience.

During market downturns and economic challenges, Dividend Challengers can exhibit a degree of stability. Their consistent dividend growth indicates that they are equipped to navigate turbulent times and maintain their commitment to shareholders.

Time-Tested Investment Strategy:

For those with a longer investment horizon, Dividend Challengers can be a valuable addition to a portfolio. Their focus on consistent dividend growth aligns with a patient and long-term investment approach.

Investors who maintain faith in the continued success of these companies can benefit from the compounding effect of increasing dividends. Over time, this can lead to a steadily growing source of income and capital appreciation.

In summary, investing in Dividend Challengers offers a unique balance of income, growth potential, and risk mitigation. While they may not have the extended track record of the other dividend categories that we will look at in this series, their consistent dividend growth makes them an attractive option for income-focused investors and those looking to diversify their portfolios while maintaining a moderate risk profile.

How did I build this example portfolio?

Creating a successful dividend challengers portfolio involves a structured approach that can help you maximize the benefits of these promising investment opportunities. Here are the key steps I considered to build this little template portfolio of dividend challengers framed in a way that can help you if you want to make your own:

Stock Selection:

  • Identify and Research: Begin by identifying potential Dividend Challengers. To do this, look for publicly traded companies that have consistently increased their dividends for at least 5 consecutive years but have not yet reached the 10-year milestone.
  • Sector Diversification: Consider diversifying your Dividend Challengers across various economic sectors. This spreads your risk and hedges against industry-specific downturns. By holding companies from different sectors (e.g., technology, healthcare, consumer goods), you reduce the impact of adverse conditions in any one sector on your overall portfolio.
  • Financial Health: Assess the financial health of the companies you’re considering. Look at key financial metrics such as the debt-to-equity ratio, cash flow, and the dividend pay-out ratio. A company with a sustainable pay-out ratio is more likely to continue growing its dividends.

Diversification:

  • Spread The Investments around different sectors and industries: Diversification is a fundamental strategy for managing risk. By spreading your investments across various sectors and industries, you reduce your vulnerability to sector-specific market fluctuations.
  • Risk Mitigation: The diverse nature of your holdings ensures that even if one industry experiences a downturn, your portfolio’s performance won’t be overly affected. This safeguards your investments and maintains a degree of stability in your portfolio.

Ok, let’s see the stocks!

ALLYAlly Financial Inc.
EOGEOG Resources, Inc.
DGDollar General Corporation
GILDGilead Sciences, Inc.
IIPRInnovative Industrial Properties, Inc.
SWKSSkyworks Solutions, Inc.
VICIVICI Properties Inc.
QSRRestaurant Brands International Inc.
OCOwens Corning
JOUTJohnson Outdoors Inc.
HOFTHooker Furnishings Corporation
MWAMueller Water Products, Inc.
NATINational Instruments Corporation
TTECTTEC Holdings, Inc.

ALLY – Ally Financial Inc.

Ally Financial Inc. is a digital financial services company in the United States and Canada. They operate in four segments: Automotive Finance, Insurance, Mortgage Finance, and Corporate Finance. They provide various financial services, including automotive financing, insurance products, mortgage management, and corporate finance services. Ally Financial, formerly known as GMAC Inc., was established in 1919 and is headquartered in Detroit, Michigan.

EOG – EOG Resources, Inc.

EOG Resources, Inc., together with its subsidiaries, explores for, develops, produces, and markets crude oil, and natural gas and natural gas liquids. Its principal producing areas are in New Mexico and Texas in the United States; and the Republic of Trinidad and Tobago. The company was formerly known as Enron Oil & Gas Company.

EOG Resources, Inc. was incorporated in 1985 and is headquartered in Houston, Texas.

DG – Dollar General Corporation

Dollar General Corporation is a discount retailer in the southern, southwestern, midwestern, and eastern United States. They offer a wide range of products, including groceries, household items, snacks, health and beauty products, pet supplies, and seasonal items. They also provide clothing and accessories for all ages. Dollar General was founded in 1939 and is headquartered in Goodlettsville, Tennessee.

GILD – Gilead Sciences, Inc.

Gilead Sciences, Inc. is a biopharmaceutical company that develops and sells medicines in the U.S., Europe, and worldwide. They have a range of products for HIV/AIDS, viral hepatitis, oncology, and other medical needs. They also collaborate with other companies to develop treatments for viral diseases. Gilead Sciences was established in 1987 and is headquartered in Foster City, California.

IIPR – Innovative Industrial Properties, Inc

Innovative Industrial Properties, Inc. is a  Maryland corporation focused on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated cannabis facilities.

SWKS – Skyworks Solutions, Inc.

Skyworks Solutions, Inc. and its subsidiaries create and sell semiconductor products in various global regions. Their product range includes amplifiers, diodes, filters, and more, used in a wide array of industries such as aerospace, automotive, smartphones, and medical technology. They distribute products through direct sales, distributors, and sales representatives. Skyworks Solutions was established in 1962 and is headquartered in Irvine, California.

VICI – VICI Properties Inc.

VICI Properties Inc. is an experiential real estate investment trust with a diverse portfolio of gaming, hospitality, and entertainment destinations, including famous Las Vegas venues. They own around 50 gaming facilities with numerous hotel rooms, restaurants, and more. Their properties are leased to top gaming and hospitality operators. VICI Properties also partners with non-gaming experiential businesses and owns golf courses and land near the Las Vegas Strip. Their aim is to create a top-tier experiential real estate portfolio by collaborating with quality operators.

QSR – Restaurant Brands International Inc.

Restaurant Brands International Inc. is a quick-service restaurant company operating globally. They have four segments: Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs. Tim Hortons offers coffee, baked goods, and food. Burger King serves flame-grilled burgers and other fast-food items. Popeyes specializes in Louisiana-style chicken and seafood. Firehouse Subs provides sandwiches, salads, and more. The company was founded in 1954 and is headquartered in Toronto, Canada.

OC – Owens Corning

Owens Corning makes and sells insulation, roofing, and fiberglass materials. They do this in the United States, Canada, Europe, Asia Pacific, Latin America, and worldwide. They have three parts to their business: Composites, Insulation, and Roofing.

The Composites part makes and sells glass fibers and products for various uses, like building structures and wind-energy turbine blades. They sell these directly to manufacturers.

The Insulation part makes and sells insulation products for buildings, like thermal and acoustical materials. They sell to installers, home centers, and retailers.

The Roofing part makes and sells roofing shingles and materials for construction. They sell through distributors and contractors.

The company started in 1938 and is based in Toledo, Ohio.

JOUT – Johnson Outdoors Inc.

Johnson Outdoors Inc. designs, manufactures, and sells seasonal and outdoor recreational products globally, with a focus on fishing, camping, watercraft recreation, and diving. They offer various fishing equipment under brands like Minn Kota and Humminbird, camping gear including tents and outdoor cooking systems with Eureka! and Jetboil branding, kayaks and canoes through Ocean Kayaks and Old Town, and diving equipment under the SCUBAPRO brand, catering to underwater enthusiasts. They distribute their products through various channels, including specialty retailers, online platforms, and original equipment manufacturers, offering a diverse range of outdoor and aquatic solutions. The company, founded in 1970, is headquartered in Racine, Wisconsin.

HOFT – Hooker Furnishings Corporation

Hooker Furnishings Corporation is in the business of designing, making, and selling all sorts of furniture for homes, hotels, and offices. They have different brands for different types of furniture, like Hooker Furniture for home essentials, Pulaski Furniture for a variety of home furnishings, and Bradington-Young for leather furniture. They also provide furniture for upscale hotels under the Samuel Lawrence Hospitality brand. In addition, they have ready-to-assemble furniture and products for senior living facilities. They sell their furniture through various retailers in North America, including furniture stores, department stores, online shops, and more. The company was founded in 1924 and is based in Martinsville, Virginia.

MWA – Mueller Water Products, Inc.

Mueller Water Products, Inc. makes and sells water-related products and services for cities, construction, and more in the U.S., Israel, and worldwide. They have two parts to their business: Water Flow Solutions, where they offer valves and related products for controlling and distributing water, and Water Management Solutions, which provides products for fire hydrants, pipe repair, water metering, and advanced water system solutions. They sell their products under various brand names and are headquartered in Atlanta, Georgia, with a history dating back to 1857.

TTEC TTEC Holdings, Inc.

TTEC Holdings, Inc. is a company that specializes in customer experience technology and services. They create and deliver digital customer experiences for various brands. They have two main segments: TTEC Digital, which focuses on designing and operating digital customer experiences using data, analytics, and automation, and TTEC Engage, which offers services like omnichannel customer care, technology support, and back-office services with a digital edge, serving clients across various industries in numerous countries. The company, previously known as TeleTech Holdings, Inc., was founded in 1982 and is based in Englewood, Colorado.

The Portfolio

So those are the stocks in the portfolio, let’s see what it looks like when we put them all together!

I decided to market weight the portfolios, this will probably be the biggest question asked when it lands on the Trading 212 pie library as the allocations might look a little bit weird.

Because the classifiers are only based on the number of years of dividend growth it makes for an unusual mismatch of company sizes.

Therefore, in my opinion, it makes more sense to market weight the stocks in the pie rather than equally weight the tiny ones with the huge mega caps.

This obviously took more time to do it this way but it means that the investment won’t be overwhelmed by movements in the smaller cap stocks

For the Dividend Challengers here’s what the pie looks like:

And for those who will inevitably ask, here is the yield, at the time of making the pie at least. Remember yield changes a little every time the market opens.

The yield at the time of making the video is 3.38%.

Click here to see the pie on the app itself

Finally, as I know this will get asked, will I be maintaining this pie?

As I have said before these pies take a lot of hard work to create and maintain, if you are taking it seriously so I will be maintaining the pies in this series as long as there is significant support from the community.

Unfortunately, if only a small number of people support the pie, I am better off focusing on things you like more.

You should see this pie as more of an example of a certain type of dividend-paying stock rather than a comprehensive portfolio for you to invest in!

Check out the other videos in the series and guess which one will perform the best!