Revealing the High Quality Dividend Growth Portfolio

The mission of this newsletter was always to develop a high quality portfolio of dividend growth stocks that you, the reader, can follow. Today I’d like to reveal the portfolio for 2024. I’ve spent the last two months screening dozens of stocks and testing various parameters to come up with an ideal selection of constituent stocks for this portfolio.

Here are the 25 high quality stocks that were chosen.

The portfolio will have an equal weight allocation, 4%, to each stock and will remain unchanged for the duration of the calendar year. As you can see in the image above several of the chosen stocks appear to be grossly overvalued. This sort of contradicts the mantra “quality at a fair price”. As my latest test revealed, while valuations are important, there are other forces that drive stock returns. Therefore I opted to place some emphasis on the valuation of each stock but also factor in other quality parameters. I’ll cover the entire process in due time, for today I simply want to reveal the portfolio given that we are already entering the second month of the year.

If you follow me on YouTube, you may have already seen my latest video, comparing dividend yield theory and the P/E multiple valuation methods. If you haven’t here it is.

In the video I analyzed the 25 chosen stocks for this portfolio during the last 6 years. On average they performed twice as good as the S&P 500, and the application of each valuation method could have led to additional alpha.

Going forward I will track the results of this portfolio in this newsletter. My hypothesis is that the portfolio will deliver positive alpha over the S&P 500 in the long run. My test window will be 5 years, with the portfolio rebalanced annually and new stocks from an investable universe of high quality dividend growth stocks.

Given the results I found in the study presented in the video, I will additionally test how a more aggressive application of this portfolio performs. The aggressive portfolio will be tilted on a quarterly basis to favor “more attractively valued” stocks. Each quarter the 5 stocks that appear to be the cheapest based on the combined valuation of dividend yield theory and the P/E multiple will have an allocation of 8%. While the remaining 20 stocks will each have an allocation of 3%. This tilt towards valuation carries additional risk as 40% of the portfolio will be concentrated towards just 20% of the stocks. However, based on the trends found in my analysis this additional risk has the potential to deliver even more alpha.

This portfolio is shared for informational purposes only, please don’t consider this financial advice. Please conduct your own due diligence before making any investment decision.