How I plan to invest my Roth IRA for 2024

I wanted to share with you how I plan to invest my Roth IRA contributions for 2024.

I basically started with the list of portfolio holdings as of the end of December 2023. I then applied some screening methods to determine the companies I am interested in investing in.

The first step I did was to review the trends in earnings per share over the past decade, in order to determine if future dividend growth is on solid footing. Without growth in earnings per share, dividends cannot grow and intrinsic value for the business would be difficult to grow as well.

The second step was to review the track record of annual dividend increases for existing holdings. I removed companies that had managed to increase dividends for less than 5 years. My goal is to find companies that can grow dividends annually, and continue doing so over time.

The third step was to review most recent dividend increases. I removed companies with small or low recent dividend raises. A small dividend increase, especially after a history of higher rates of growth, indicates potential issues down the road. I also removed companies that have stopped growing dividends for over 4 quarters for the same reasons.

The fourth step involved reviewing basic valuation. I removed all companies that had a forward P/E ratio above 25. While P/E ratio should not be viewed in a vacuum, and should be looked in conjunction with growth, I do not feel comfortable overpaying for future growth. There is a limit to future growth up to a point, and I do not want to overpay for it. I do welcome future growth but only at a decent entry price.

This exercise resulted in a group of 54 companies which I believe are good long-term values today. A portfolio of such companies would likely do well over time in achieving the goal of growing dividend income over time. It also answers the question as to which companies I find attractive today, and which of the existing portfolio holdings I would invest in a lump sum today. I guess it also answers the question, how I would invest a lump-sum today as well.

You can view the list here: