This is definitely more risky than Chevron Corporation (NYSE:CVX), but since it will only represent about 5% of the portfolio it seems like a reasonable risk to take. With a 5% yield the bar for dividend growth is quite low, so that provides a bit of a margin of safety.
Based on the current market price I’ll add 115 shares of BP plc (ADR) (NYSE:BP) to The Ultimate Dividend Growth Portfolio for a total cost basis of $4,981.80. The projected annual dividend income from this position is $248.40.
General Mills, Inc. (NYSE:GIS)
The non-oil stock I’ll be adding to the portfolio is General Mills, Inc. (NYSE:GIS), maker of popular cereals and other food products. The company boosted its dividend by 15% for the next dividend payment going ex-div in July, putting the current yield at a hair over 3%. Many of General Mills, Inc. (NYSE:GIS)’ brands are market leading, like Cheerios, Yoplait, Gold Medal, Pillsbury, Green Giant, and Betty Crocker, and this should provide the company an economic moat.
Over the past decade the dividend has grown at an annualized rate of 9.25% not including the most recent 15% hike. The payout ratio with respect to net income has remained in the low 40’s throughout the decade with the exception of fiscal 2012 when the net income fell. Compared to some of the other holdings in the portfolio General Mills, Inc. (NYSE:GIS) is towards the bottom of the list in terms of dividend growth potential. The strong brands make the company stand out, however, and that gives me some confidence in the company’s future.
The stock has jumped about 25% since the beginning of the year to an all time high, raising questions about how expensive the stock is. But the 15% dividend increase puts the yield at 3% even after this big run up, so I’m not all that concerned. The stock may pull back, but the yield-on-cost is 3% regardless.
Based on the current market price I’ll add 100 shares of General Mills, Inc. (NYSE:GIS) to The Ultimate Dividend Growth Portfolio for a total cost basis of $5,040. The projected annual dividend income from this position is $152.
Almost there
This brings the total number of positions in the portfolio to 17, and with about $15,000 in cash left next time I’ll complete the portfolio by adding the last three positions. The portfolio is up almost 2% in value since inception due to Microsoft Corporation (NASDAQ:MSFT), Corning Incorporated (NYSE:GLW), and Intel Corporation (NASDAQ:INTC) all being up over 10%. And so far both Apple Inc. (NASDAQ:AAPL) and Corning Incorporated (NYSE:GLW) have announced dividend increases. You can track the portfolio at any time by going here. And until next time, here’s a snapshot of the current state of the portfolio.
The article Adding Oil To The Ultimate Dividend Growth Portfolio originally appeared on Fool.com and is written by Timothy Green.
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