For this optimization analysis, thirty-one high yielding Dividend Aristocrat stocks were select from the list provided in this Seeking Alpha article. For the initial portfolio, 100 shares were "invested" in each stock creating a portfolio valued a little above $200,000.
Efficient Frontier: The Efficient Frontier (EF) graph shown below identifies the Return/Volatility coordinates (diamond dot) from the sample portfolio made up of equal shares. The optimized portfolio is identified by the red dot further up the EF curve.
How to move the current portfolio toward the optimized portfolio is shown in the third screen-shot. Two important assumptions impacting this EF graph are the following: 1) The S&P 500 is assumed to grow at 7.0% per year. 2) The Risk-Free investment is set at 0.2%.
Ranking Dividend Aristocrats: The following table shows the ranking of 31 aristocrats based on a 50% weight allocated to the most recent 3-months of performance, 30% weight assigned to the latest 6-months performance, and 20% weight given to stock volatility. We seek for low volatility stocks as well as high performers.
Buy-Hold-Sell Recommendations: While the above two screen-shots are informational, this third screen shot is the action table. What this table does is take the top six stocks (the money manager can self-select the number) and determines if any buys are recommended so as to move the current asset allocation toward the optimized portfolio.
The decisions are not always clear cut. Both the optimizer and momentum indicator point toward buying CINF (22 shares) and JNJ (33 shares). Judgment is required when it comes to WAG, KMB, and PG as the momentum indicator is showing a buy while the optimizer is telling the investor to reduce the number of shares in these companies.
When it comes to sell signals, we see a clear path when it comes to ABT, TLT, SWK, and SYY. Both the momentum indicator and optimizer are flashing a sell signal. The picture is not so clear with respect to EMR, CVX, and TROW as the optimizer recommends adding shares while the momentum indicator is negative.
Caution: These buy, hold, and sell signals are provided in the context of this 31-security portfolio and cannot be generalized to all portfolios. For example, a stock showing a sell, such as ABT may well generate a buy when it is part of another portfolio.