Recent research on long-duration investing (time-horizon arbitrage - why dividend growth investors hold) is outlined on the front page of the Connolly Report's 35th year edition (June 2016). What I've learned and experienced about dividend growth investing over three and more decades…five points.
What we do is the opposite of what funds, including ETFs, do. We concentrate in the best dividend growers and, in aggregate, our income grows every year. The Connolly Report regularly produced tables showing year-over-year dividend growth for over two dozen common stocks (year-over-year, not just an average). And, having covered them for decades, we know which stocks are the best. $50 gets you that information. High yield is not the answer. Actually the highest dividend growth average is not the answer, either. In contrast to what we do as individual investors, the huge RBC monthly income fund holds 309 stocks (and over 1,000 bonds) Imaging!. In 2008, 2009, 2010 and 2011 the distribution from this fund was 57¢. Now it's 51¢. You have to learn how to do it yourself to win…to obtain a safe and growing retirement income. Connolly's May 2016 White Paper topic was “As the dividend grows, so does the price”. It's inside dividendgrowth.ca too. You'd be surprised who supports the thesis: none other than John Maynard Keynes, Ben Graham and Arnold Bernhard (the founder of Value Line). The research facilities at Queen's are terrific.
Here's an example: In 1987 my wife purchased BMO at $6.90 (adjusted for three 2:1 splits). Her yield is now 50% on the 3.44% dividend. My wife's future expected cash flow is happening now: fully half of what was paid for the common stock is now returned each year as a dividend. This is what 'Yield on Cost' measures: the cash flow year after year. And next year, she'll get the other half of her purchase price back. And so on, and so on. And this will happen now even if the dividend does not rise. Her BMO is 'bondified'. So is her Canadian Utilities from 1992 bondified and TransCanada from 2000 and even BCE from 2012. Four safe sectors, four quality stocks, with about 15% in each. There rest is cash (the market is expensive just now) and two other common stocks. 'Bondified' is a word I coined to indicate a large margin of safety and great and growing yield…a finally same stock. We do not hold preferreds (they're not) nor bonds.