Dividend Growth Index Update Q2

Nine months ago in September 2011, several dividend bloggers created a Dividend Growth Index of 24 companies. Eight members each chose three dividend stocks to virtually invest in.

My three picks were Walmart (WMT), Novartis (NVS), and Energy Transfer Equity (ETE). The overall index is up a bit over 18% over those nine months. For this update, I’ll summarize my three picks.

Walmart (WMT)

At least for now, Walmart is my best performing pick, and one of the strongest performers in the index. The stock has returned over 36% over this period, which is pretty surprising coming from a very large blue-chip company that has had a flat stock price for years.
I analyzed Walmart here.

For years, Walmart stock had pretty poor returns because like many dividend blue-chips, it was drastically overvalued. So while EPS kept growing like clockwork, the valuation kept shrinking, resulting in lackluster returns. However, the valuation seems to have gotten low enough to the point where as EPS keeps increasing, valuation shouldn’t keep decreasing, and therefore the price should increase.

Over the last year or so, Walmart has reported strong revenue growth, the valuation has moved modestly upward, and the substantial share repurchases that Walmart continually utilizes boosted EPS growth, which all came together to create very good returns over this period.

I’d advise not to chase success, however. I pretty much have to agree with Morningstar’s 2-star stock rating on the current valuation. After this size of a stock price increase, I don’t particularly view Walmart stock as an ideal investment.

Novartis (NVS)

Novartis has been rather flat over this period. I published a Novartis analysis last week.

The setbacks for the company included the well-known patent expiration of their number 1 blockbuster drug, and the unexpected quality control problems with their Nebraska over the counter production facility that issued voluntary recalls for some products. I consider it a strong stock, however, because the revenue reduction from the patent expiration is being replaced by new products, and their plan is to re-open their facility that was closed due to recalls this year. The company is extremely diverse with strong pharmaceutical, eye-care, generics, vaccination, and over the counter segments.

Energy Transfer Equity (ETE)

Energy Transfer Equity holds the General Partner and Incentive Distribution Rights (IDRs) of a number of partnerships including Energy Transfer Partners (ETP), Regency Energy Partners (RGP), and other energy assets. Their principle business is the transportation of energy, especially natural gas.

ETE has returned about 23% since the inception of the index. ETE’s primary holding, Energy Transfer Partners (ETP), announced an acquisition of Sunoco to further diversify itself. They also closed their Southern Union merger, and are planning to drop assets down to ETP. In addition, ETP issued new units, which is what MLPs typically do to grow. As I described in my analysis of ETE (which could use an update), ETE should benefit over the long term as ETP issues units and grows.

Other Updates

Other members of the index are publishing updates for their holdings today as well.

The Dividend Guy
My Own Advisor
Dividend Mantra
The Passive Income Earner
Dividend Ninja
Dividend Growth Investor
Susan Brunner

Full Disclosure: I am long ETE and NVS.
You can see my dividend portfolio here.

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  1. Congrats on doing well in the contest.


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