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Last year in February 2012, I wrote an article on a strategy I created to pick stocks by using the holdings of two ETFs based on two popular investment themes: Dividends and Buybacks. This article is a review of the performance of the stock picks from the article, as well as my 2013 stock picks using the same strategy I used in my article last year.

My Strategy

Instead of trying to decide which of the two themes was better, I decided to combine them into a single strategy. I built my screen by using the holdings of a dividend ETF and the holdings of a buyback ETF, and seeing which companies were in both ETFs. By doing this, the process "screened" companies that pay increasing dividends and are buying back shares at the same time, therefore capturing the best of both themes. The two ETFs I used were the Vanguard Dividend Appreciation ETF (VIG), and the PowerShares Buyback Achievers (PKW).

My Process

First, I went to the holdings page for VIG on Vanguard's website, and I copied and pasted the holdings into a spreadsheet. Next, I went to the holdings page for PKW on the PowerShares website and repeated the same process of copying and pasting the holdings into the spreadsheet. I then combined the holdings on one page of the spreadsheet and sorted them alphabetically. After sorting, I found that 13 companies were included in both the dividend ETF and the buyback ETF.

VIG Description

From Vanguard's fund description page: "The Vanguard Dividend Appreciation ETF seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time."

PKW Description

From PowerShares fund description page: "The Index is designed to track the performance of companies that meet the requirements to be classified as BuyBack Achievers™. To become eligible for inclusion in the Index, a company must be incorporated in the U.S., trade on a U.S. exchange and must have repurchased at least 5% or more of its outstanding shares for the trailing 12 months."

2012 Performance

Using the dividendchannel.com DRIP calculator, I calculated the total return for all the picks from 2012 as well as the returns for the SPDR S&P 500 Trust ETF (SPY), as well as for the two ETFs I used to screen: VIG and PKW. The returns in the table below are from a starting date of February 8, 2012, which was the date my article was published, until the end of 2012.

Symbol

Company

Total Return

BDX

Becton Dickinson And Co

-0.51%

CB

Chubb Corp

13.60%

COP

ConocoPhillips

10.68%

FDO

Family Dollar Stores Inc

11.67%

GD

General Dynamics Corp

0.34%

IBM

International Business Machines Corp

1.02%

LOW

Lowes Companies Inc

33.57%

PPG

PPG Industries Inc

52.25%

TGT

Target Corp

16.28%

SPY

SPDR S&P 500

8.27%

VIG

Vanguard Dividend Appreciation ETF

6.91%

PKW

PowerShares Buyback Achievers

7.05%

VIG/PKW Average

6.98%

My Portfolio Average

15.43%

Observations

The above table shows my strategy of combining dividends and buybacks worked out very well this year. The portfolio had an outperformance of 7.16% over the SPY, and 8.45% outperformance over a 50/50 portfolio of VIG and PKW. The strategy performed well above my expectations by nearly doubling the performance of the SPY.

2013 Strategy Picks

I am looking forward to seeing if my strategy will outperform once again in 2013, as well as how the strategy will perform if the market is a down market rather than a rising market. In the table below is the list of companies that were included in both funds holdings, as well as each companies PE ratio and dividend yield from Yahoo Finance.

Symbol

Company

PE Ratio

Dividend Yield

(BDX)

BECTON DICKINSON & CO

14.38

2.50%

(CB)

CHUBB CORP

11.32

2.10%

(CTAS)

CINTAS CORP

17.67

1.50%

(FDO)

FAMILY DOLLAR STORES

15.76

1.50%

(GD)

GENERAL DYNAMICS CORP

10.58

2.90%

(HRS)

HARRIS CORP

-

3.00%

(HCC)

HCC INSURANCE HOLDINGS INC

11.03

1.70%

(IBM)

INTL BUSINESS MACHINES CORP

13.94

1.80%

(LOW)

LOWES COMPANIES INC

21.36

1.80%

(NSC)

NORFOLK SOUTHERN CORP

11.90

3.10%

(PH)

PARKER HANNIFIN CORP

12.49

1.80%

(PPG)

PPG INDUSTRIES INC

23.29

1.70%

(TGT)

TARGET CORPORATION

13.43

2.40%

Closing Thoughts

This year there was 13 stocks that were in the holdings of both ETFs, which is up from nine that were in both last year. Interestingly, of the nine stocks that made the list last year, all but one made the list again this year. The only exception was ConocoPhillips (COP), which I suspect did not make the list because of its spinoff of Phillips 66 (PSX), which has created a lot of value for PSX shareholders, as it's up 56.29% since the spinoff. As I said earlier, I am looking forward to another exciting year and to seeing how this strategy will perform again against the SPY, as well as the VIG and PKW.

Disclaimer

Source: Dividends Or Buybacks, Why Not Both? 2012 Review, And 2013 Picks