Lazy Investing?

You may have heard the term "Lazy Investing" before. If not, it means selecting a group of different ETFs or mutual funds in such a way that the combination gives you diversification against the entire universe of asset classes. Some good ETFs that apply to our dividend growth approach are iShares Dow Jones Select Dividend Index (DVY) and SPDR S&P Dividend (SDY)

Although you may want to consider having one of these along with individual stocks, I would argue that it is usually worth the 'extra' effort to focus more on individual stocks, particularly those that are managed with shareholder interests in mind. It's really not that much work anyway to find quality companies that have good earnings growth and that regularly increase their dividends. While you are doing that, you also need to pay attention to selecting companies across all sectors, including foreign ADRs.

What about bonds? Don't you need them to have proper diversification? The textbook answer is "yes," but my view is that unless you are very near to your retirement date (within a few years), consider that proper selection of these kinds of stocks will pay a yield far better than bonds after a 3-6 year holding period. Better yet is the yield increases with each succeeding year, at least at the portfolio level. If you select right, it will happen on each holding as well.

It takes a mental adjustment, but start thinking of stocks not as a price appreciation vehicle per se, but as a cash flow machine that rewards you with more and more cash with each year you hold it.

That is not to say you should 'just set it and forget it'. Look at the market for dividend candidates better than what you currently have, and don't be afraid to upgrade.

For example, today I sold a number of stocks. One was Pfizer, which S&P now only rates a hold (3 stars). They paid a good dividend and have been growing dividends for a number of years, but there is concern over how long earnings growth can sustain the dividend growth. The others were Rohm & Haas (ROH)(3 stars), Cato (CTR)(not covered by S&P), Southern Copper (PCU)(not covered) which had a nice gain of 35%+, and Eaton (ETN)(3 stars).

Considering the nice run the market has had, it a good idea to trim the lower ranked stocks and prepare to buy some better quality alternatives when we get a real pullback (it could be soon).

I'm looking at Yum! Brands, rated 5 stars with a 2% yield, Tsakos Energy (TNP), rated 4 stars with a 5.4% yield, Taiwan Semi (TSM), rated 4 stars and a 3.3% yield, and Eni Spa (E), rated 4 stars and a 4.7% yield. All of these have good dividend growth as well.