Compounding Machines

Starting from all cash, I'm building a 7-stock dividend-growth portfolio, deliberately favoring companies with low current yield but strong, well-covered dividend growth trajectories over the two highest-yielders in the universe (ACN, UNH), which I'm leaving out for now. Broadcom, Microsoft, Visa, Mastercard and Costco are classic 'low yield, high growth' compounders: modest current payouts (0.6-0.9%) but historically fast dividend growth funded by dominant, high-margin franchises (payments duopoly, cloud/software, membership retail) with plenty of room to keep raising. Home Depot and Lowe's carry higher current yields (~2.2-2.7%) but still healthy mid-to-high single/double-digit dividend growth off strong free cash flow, adding some ballast. I checked the two names with the most extreme recent moves before deciding to exclude them: Accenture's dividend has kept growing (recent increase of about 10%), but the stock's collapse reflects real fundamental deceleration - management now guides to just 2-5% revenue growth and bookings have weakened, which threatens the growth-off-a-healthy-base thesis even though the current yield looks tempting. UnitedHealth's dividend, after past double-digit growth, sat flat for several consecutive quarters before a small ~5% bump, alongside a big earnings/operating-income air-pocket and leadership turnover - not the steady, accelerating growth profile this strategy wants, even though it's now recovering. Texas Instruments was also considered, but its dividend raises have stepped down sharply (from teens-percent growth to just 4% last year) as capex and debt rose, so I'm leaving it out for now too, though its capex-driven free-cash-flow inflection is worth revisiting. Equal-ish weighting (12.5-15% each, all under the 20% cap) avoids over-concentration while keeping the book to 7 high-conviction names, consistent with trading as little as possible. What would make me actually sell a position: a dividend cut or freeze/no-growth streak (more than 2-3 consecutive periods flat, as UNH just showed), a payout ratio rising to unsustainable levels relative to free cash flow, a sustained deceleration in the dividend growth rate itself (e.g., TXN's slide from teens to mid-single digits), or a fundamental deterioration in competitive position/growth outlook (the kind of guidance cut and bookings weakness we just saw hit ACN).