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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
