June 1st, 2011 | 
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I was watching the guest interview of Tom Cameron on Business News Network this past week where he highlighted the 10/10 rule utilized by his investment firms. It is very pertinent to dividend investors since it’s all about the dividend growth. In fact, 10/10 stands for a company that increases dividends for 10 consecutive years with an average of 10% or more growth in dividends per year.
10/10 Strategy
It’s a simple screening test really. You can follow this process of elimination.
- Identify companies that have paid dividends for the past 10 years.
- Identify the companies that have increased their dividends by an average of 10% per year for 10 years.
Rather than focusing on the yield, it focuses on the dividend growth to accelerate compound growth. A consistent growing dividend under a DRIP could double your holdings in a good time frame. Patience is quite important here as the growth in yield over many years is what you bank on to increase your holdings.
What is interesting is that a dividend aristocrat may not pass the criteria here even if they increase dividends for 25 consecutive years. The combination of both should provide a really solid investment though.
Top Holdings
Although historical data are available to filter stocks, it’s not always easy to filter on it without putting the data together yourself. Especially when you need to look at historical data. The fund highlights their performance and top holdings on their site but I thought I’d share the holdings here with some extra information. It does in fact keep up with the S&P 500 index, my fellow blogger Andrew Hallam might be impressed 
Ticker Company Stock Price Dividend Yield 10 Year Average Growth Consecutive Dividend Increase
NVO Novo-Nordisk A/S $124.42 1.52% 23.5% 14
TEVA TEVA Pharmaceutical $50.00 1.64% 29.7% 10
ADM Archer-Daniels-Midland Co. $31.11 2.06% 12.6% 36
IBM Int'l Business Machines $166.56 1.80% 17.8% 15
WAG Walgreen $43.32 1.62% 16.1% 35
NSRGY Nestlé SA $63.59 - 14% 14
CAH Cardinal Health $44.51 1.93% 27.6% 14
MCD McDonald's Corp $80.98 3.01% 28.3% 34
NVS Novartis $63.48 3.72% 10.6% 16
PX Praxair, Inc. $103.39 1.93% 19.6% 18
Thoughts
I went back and looked at the stocks I reviewed in the past months and only one matches the 10/10 criteria: Enbridge (ENB). Power Corp (POW), Power Financial (PWF) and Great-West LifeCo (GWO) each had 8 years of consecutive double digit growth and then lower growth for the last couple of years with no increase in dividends for 2010. A similar faith for the banks. The lack of dividend increase in 2010 basically fails the criteria and takes the companies out of the selection for another 10 years. I still consider them solid companies as you would see from my stock analysis and a reason that following a rigid rule may not always be best but it can sure simplify the process and eliminate emotions.
Readers: What do you think of the filtering criteria?
Disclaimer: Long ENB.
I like this screening method and am intrigued by it. I like the list of stocks. These are good solid companies. I was surprised to see McDonald’s on the list. I just never really thought of investing in the golden arches for dividends. Thanks for this information.
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I was quite intrigued too when I was listening. During the comments, he mentioned that following this rule he had sold the financial institutions before the crisis … Luck? or is it repeatable?
This seems like an interesting formula to follow, but with stocks, can one be so cut and dry? Will some good stocks fall by the wayside?
PIE,
Great Article, you have put a lot of work into this post! I also saw this segment with Tom Cameron, and was quite intrigued with the 10-10 model.
He has also been investing with that model for a long time! And the results are quite amazing, since not only do these stocks have dividend increases but also strong capital growth over time. To me its a spin-off of the Dividend Aristocrats,but even a more stringent screening. Makes dividend investing the way to go doesn’t it?
[...] Passive Income Earner wrote an excellent post on Dividend Investing With a 10/10 Rule. Tom Cameron was a guest last week on the BNN (Business News Network). He discussed the concept of [...]
I like the concept, but I think there should be some caution with it. Is the company still paying a dividend, but has a poor payout ratio? Many utilities fall into this category as their dividends are essentially a return of capital. Also, do we give companies a break for the credit crunch? I would rather my company save cash rather than have to borrow at poor rates.
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Thanks for the comment.
I agree with you. I could not blindly exclude companies without understanding the context. What I found interesting was how it uses a 10% dividend growth as a criteria whether or not the yield is high … A company with a 1% yield can still have a 10% dividend growth but it pays little dividends (i.e. little income) while providing for more stock appreciation I guess. Which do you prefer may be the question …
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Historically I’ve been more of a growth stock person, but am getting more and more interested in div stocks. Seems like it might take a while to collect the information in your chart?
[...] Dividend Investing With a 10/10 Rule @ The Passive Income Earner. [...]
Nice article. I’ve heard of this rule but it nice to see it articulated and in action, if you will. Kinda makes me feel good about my choices, holding ENB and PWF, whereby PWF holds about 2/3 GWO
You must feel the same PIE?
Great info, and I don’t know if I’ve ever quite screened for dividend growth stocks in that way, as I’ve used many screens before. Of that list, I think MCD and NVS are the strongest plays if a correction hits. Great article!
Dividend Mantra recently posted..Freedom Fund Update – June 2011
I’m wondering what other canadian stocks qualify for thus 10/10 rule?
I have not researched any others. Since I did some analysis on the ones I mentioned, I could look as I had 10 year history of dividends. It’s quite a bit of work. You would need to start with the Canadian Dividend Aristocrats, as they require 5 year of consecutive growth and you can filter more from there.
[...] Dividend Investing With a 10/10 Rule » June 5th, 2011 | Category: Compound Growth, Dividend Growth, Dividend Yield, ENB, PWF [...]
This is a really impressive number for companies to keep up that high level of a dividend payout.
I was familiar with most companies on this index but I was mostly surprised with the yield of IBM. I also understand they have a lot of cash at the moment set for acquisitions so this could even increase.
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[...] start reviewing potential investments again. I would like to find more companies that matches the 10/10 rule (10 consecutive dividend increase with a 10% [...]