The Benefits of Automatic Investing

The first three weeks of this month have been terrible for investors worldwide. It could be painful to watch your portfolio value decrease day after day. The funny part is now we have a lot of bargains, relative to what we had just a month ago. However, many investors find it psychologically difficult to add to a position, which then gets even cheaper.

This is why I am happy that I set myself up to buy stocks automatically in 2016, through my bi-weekly 401 (k) contribution.

I am also happy that I set my dividends to automatically reinvest in 2016 for tax-deferred accounts.

Of course, when you have decided that you will live off dividends in 2016, and invest the rest of the contributions through tax-deferred accounts in order to build up the tax efficiency of your portfolio, you get another sort of challenges as well.


The interesting part is that I will be spending my taxable dividends in 2016, along with any side income I generate. The activity in 2016 is a great simulation for me, in order to see how I would feel if I decide to live off dividends and see great dividend bargains where I cannot really participate in. My consolation today is that my 401 (k) gets new money invested twice per month, but in a real retirement I probably will be unable to invest a significant amount during downturns.

If I had some extra cash on hand however, I would be eyeing dividend champion companies where:

1) The P/E ratio is below 20
2) The dividend yield is above 2%
3) The dividend payout ratio is below 60%
4) Annual dividend growth is higher than 4%
5) The dividend has been increased every single year for at least 25 years ( being a dividend champion)

Using these parameters on the list of dividend champions, I came up with the following list of companies for further research:

Name	SYMBOL	P/E	YIELD	DIV/SHARE	EPS	PRICE	DPR	Dividend growth
Sonoco Products Co.	SON	15.9	3.67%	1.4	2.38	37.84	58.82%	4.06%
Bemis Company	BMS	18.14	2.53%	1.12	2.45	44.47	45.71%	4.52%
Cincinnati Financial	CINF	14.06	3.33%	1.84	3.9	54.79	47.18%	4.59%
Eagle Financial Services	EFSI	10.06	3.40%	0.8	2.29	23	34.93%	4.81%
Commerce Bancshares	CBSH	15.14	2.31%	0.9	2.52	38.76	35.71%	4.83%
Telephone & Data Sys.	TDS	11.68	2.56%	0.56	1.84	21.52	30.43%	4.89%
1st Source Corp.	SRCE	12.4	2.52%	0.72	2.19	27.16	32.88%	5.18%
RPM International Inc.	RPM	20.93	2.82%	1.1	1.9	39.72	57.89%	5.63%
Tompkins Financial Corp.	TMP	13.66	3.36%	1.76	3.8	51.93	46.32%	5.78%
Stanley Black & Decker	SWK	19.22	2.30%	2.2	4.94	95.12	44.53%	6.50%
Questar Corp.	STR	15.28	4.41%	0.84	1.25	19.09	67.20%	6.56%
Genuine Parts Co.	GPC	17.33	3.14%	2.46	4.64	80.4	53.02%	6.94%
Leggett & Platt Inc.	LEG	21.51	3.34%	1.28	1.86	39.95	68.82%	7.26%
UGI Corp.	UGI	20.32	2.75%	0.91	1.6	32.51	56.88%	7.44%
Emerson Electric	EMR	10.97	4.40%	1.9	3.99	43.8	47.62%	8.35%
Johnson & Johnson	JNJ	18.51	3.08%	3	5.21	96.5	57.58%	8.75%
3M Company	MMM	18.1	2.96%	4.1	7.74	140.02	52.97%	9.33%
MSA Safety Inc.	MSA	18.11	3.33%	1.28	2.17	39.365	58.99%	9.34%
Pentair Ltd.	PNR	16.59	2.99%	1.32	2.72	45.13	48.53%	9.43%
ExxonMobil Corp.	XOM	16.08	3.82%	2.92	4.73	76.14	61.73%	9.71%
Air Products & Chem.	APD	20.42	2.71%	3.24	5.88	120.09	55.10%	9.86%
Dover Corp.	DOV	9.75	3.16%	1.68	5.56	54.19	30.22%	11.52%
Eaton Vance Corp.	EV	14.7	3.84%	1.06	1.92	28.25	55.21%	11.56%
Weyco Group Inc.	WEYS	13.98	3.35%	0.8	1.78	24.89	44.94%	12.19%
Archer Daniels Midland	ADM	11.41	3.67%	1.12	2.9	33.03	38.62%	12.66%
Wal-Mart Stores Inc.	WMT	13.44	3.13%	1.96	4.67	62.75	41.97%	12.89%
Illinois Tool Works	ITW	16.46	2.69%	2.2	5.05	83.07	43.56%	13.11%
AFLAC Inc.	AFL	9.98	2.90%	1.64	5.71	57.06	28.72%	13.64%
Parker-Hannifin Corp.	PH	13.95	2.87%	2.52	6.53	91.13	38.59%	15.96%
Computer Services Inc.	CSVI	18.89	2.78%	1	1.98	37.5	50.51%	16.17%
Franklin Resources	BEN	10.37	2.18%	0.72	3.29	34.15	21.88%	16.23%
T. Rowe Price Group	TROW	14.43	3.17%	2.08	4.63	66.83	44.92%	16.29%
Donaldson Company	DCI	19.94	2.57%	0.68	1.38	27.54	49.28%	16.95%
W.W. Grainger Inc.	GWW	16.64	2.51%	4.68	11.36	189.3	41.20%	17.44%

This list of course is not an automatic buy. The investor needs to evaluate each company to determine whether earnings are rising, whether they understand the business, and whether they believe that the business can stand to earn more over time. This is the part that proves the point that investing is part art, part science. If I had a list of several quality companies available at fair values, I could automatically purchase those companies through a broker like Motif Investing.

Full Disclosure: Long GPC, EMR, JNJ, XOM, APD, EV, ADM, WMT, AFL, ITW, TROW, GWW

Relevant Articles:

- Dividend Champions - The Best List for Dividend Investors
- 39 Dividend Champions for Further Research
- Living off dividends in 2016 – My New Goal
- What drives future investment returns?
- Dividend Investors: Stay The Course