Retirement Strategy: ETF Only Portfolio Vs. Buy The Dips Portfolio - August Update

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 |  Includes: AAPL, CVX, DLN, ED, GE, JNJ, KO, MCD, MSFT, PFE, PG, SCHD, SDY, T, VIG, VYM, WMT, XOM
by: Regarded Solutions

Summary

The gap between the passive portfolio and actively managed portfolio remains significant.

Not much dividend activity, yet the BTDP still added dollars.

There should be less doubt as to which portfolio generates greater total returns and income.

When I began this little experiment, I had plenty of folks on both sides of the issue touting each direction. Of course as an active portfolio, I felt that a portfolio consisting of dividend income stocks, mainly mega cap blue chip dividend champs, would outperform a portfolio for the passive investor who has no inclination to do anything but let ETF managers manage their portfolios "for" them.

Little did I know that the gap would be as wide as it has become so soon.

The ETFOP Passive Update

The ETFOP consists of the following ETFs: Vanguard High Dividend Yield Index ETF (NYSEARCA:VYM), SPDR Dividend ETF(NYSEARCA:SDY), WisdomTree LargeCap Dividend ETF(NYSEARCA:DLN), Vanguard Dividend Appreciation ETF(NYSEARCA:VIG) and Schwab U.S. Dividend Equity ETF(NYSEARCA:SCHD).

The reason these ETFs were selected for this portfolio was because it held the very same dividend growth stocks as our stock portfolio. Each has excellent diversification, great allocations, and are managed by the wisdom of professional portfolio managers.

Here are the top 10 holdings in each ETF:

VYM Top 10 Holdings DLN Top 10 Holdings SCHD Top 10 Holdings
Stock Allocation Stock Allocation Stock Allocation
XOM 5.64% XOM 3.41% XOM 4.51%
MSFT 3.98% AAPL 3.35% MSFT 4.50%
GE 3.59% MSFT 3.14% JNJ 4.37%
JNJ 3.48% T 2.83% KO 4.20%
WFC 3.36% JNJ 2.38% CVX 4.17%
CVX 3.04% CVX 2.33% PG 4.13%
JPM 2.95% GE 2.29% INTC 3.56%
PG 2.92% PFE 2.13% PEP 3.56%
PFE 2.76% WFC 2.09% WMT 3.50%
T 2.48% PG 2.00% HD 3.35%
SDY Top 10 Holdings VIG Top 10 Holdings Combined Top 10
Stock Allocation Stock Allocation Stock Allocation
HCP 2.92% ABT 3.94% XOM 17%
T 2.52% PEP 3.93% CVX 13%
NNN 2.45% PG 3.84% MSFT 12%
ED 2.33% WMT 3.78% JNJ 11%
PBCT 1.88% KO 3.60% PG 11%
MCD 1.68% UTX 3.59% T 8%
FRT 1.66% XOM 3.56% KO 8%
KMB 1.65% CVX 3.41% PEP 7%
SYY 1.61% MCD 3.33% WMT 7%
LEG 1.59% MMM 3.07% GE 6%
Click to enlarge

As you can see, each of these highly rated ETFs consists mainly of dividend champion stocks that have increased dividends consistently over the years. The combined holdings makes up the total allocations of the top 10 holdings, and was the foundation for building the BTDP with the same exact stocks and close to the same allocation as the ETFOP.

As of August 29th, I have not been notified of any changes in any of the ETFs.

Here are the August results:

      ETF ONLY PORTFOLIO          
Symbol Shares Yield Dividend Yrly Income Share Price Tot. Cost Tot.Value 1-Sep Div/Cash
VYM 350 2.80% $1.85 648 $62.44 21854 23677 $67.65 $0
SDY 350 2.30% $1.70 595 $73.18 25613 26933 $76.95 $0
DLN 350 2.40% $1.64 575 $66.71 23349 25183 $71.95 $0
VIG 350 2.00% $1.49 522 $75.44 26399 27332 $78.09 $0
SCHD 350 2.70% $1.00 350 $36.61 12764 13611 $38.89 $0
x Totals 2.44% x 2690 x 109979 116736 x $0
Click to enlarge

The total value last month was $112,480, and of course, the dividends have remained the same. There are no ex-dividend dates for September to add to the total, but all in all, the ETFOP had a very solid month. An increase of about $4,300 (roughly 4%) for the month is nothing to pooh-pooh.

For that passive investor, who has not lifted a pinky, that is quite compelling.

The BTDP Active Update

The BTDP still consists of the following stocks: AT&T (NYSE:T), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), Altria (NYSE:MO), McDonald's (NYSE:MCD), Chevron (NYSE:CVX), Apple (NASDAQ:AAPL) General Electric (NYSE:GE), Ford (NYSE:F), Microsoft (NASDAQ:MSFT), Wal-Mart (NYSE:WMT) and Pfizer (NYSE:PFE), Annaly Capital (NYSE:NLY), American Capital (NASDAQ:AGNC), and BGC Partners (NASDAQ:BGCP).

While I did not make any changes during August, I certainly was looking for opportunities. That being said, let's see how my BTDP faired through August:

Symbol Shares OrigYield Dividend Annual Income Cost Basis Total Cost 29-Aug Total Value Sept Ex-D
T 200 5.60% $ 1.84 $ 368.00 $ 31.95 $ 6,390.00 $ 34.87 $ 6,974.00  
XOM 50 2.80% $ 2.76 $ 138.00 $ 90.05 $ 4,503.00 $ 99.05 $ 4,952.00  
JNJ 100 3.10% $ 2.80 $ 280.00 $ 86.78 $ 8,678.00 $ 103.52 $ 10,352.00  
KO 200 3.00% $ 1.22 $ 244.00 $ 37.21 $ 7,442.00 $ 41.63 $ 8,326.00 $ 61.00
PG 100 3.10% $ 2.57 $ 257.00 $ 75.71 $ 7,571.00 $ 82.89 $ 8,289.00  
GE 300 3.60% $ 0.88 $ 264.00 $ 24.35 $ 7,305.00 $ 25.91 $ 7,773.00  
MCD 100 3.50% $ 3.24 $ 324.00 $ 93.02 $ 9,302.00 $ 93.53 $ 9,353.00  
CVX 50 3.60% $ 4.28 $ 214.00 $ 111.14 $ 5,507.00 $ 129.28 $ 6,464.00  
AAPL 75 2.25% $ 1.88 $ 141.00 $ 75.21 $ 5,641.00 $ 102.56 $ 7,692.00  
MO 100 5.20% $ 2.08 $ 208.00 $ 37.71 $ 3,771.00 $ 43.05 $ 4,305.00 $ 52.00
F 400 3.20% $ 0.50 $ 200.00 $ 15.15 $ 6,060.00 $ 17.45 $ 6,980.00  
MSFT 200 2.80% $ 1.12 $ 224.00 $ 40.16 $ 8,032.00 $ 45.31 $ 9,062.00  
WMT 100 2.50% $ 1.92 $ 192.00 $ 76.11 $ 7,611.00 $ 75.55 $ 7,555.00  
PFE 200 3.20% $ 1.04 $ 208.00 $ 32.18 $ 6,436.00 $ 29.36 $ 5,872.00  
NLY 500 10.70% $ 1.20 $ 600.00 $ 11.19 $ 5,595.00 $ 11.90 $ 5,950.00  
AGNC 300 11.30% $ 2.60 $ 780.00 $ 22.99 $ 6,900.00 $ 23.65 $ 7,095.00  
BGCP 500 6.30% $ 0.48 $ 240.00 $ 7.49 $ 3,750.00 $ 7.56 $ 3,780.00  
  x x x x x x   $ 2,736.00 $ 113.00
x x 4.46% x $ 4,882.00 x $ 110,494.00 x $ 123,510.00  
Click to enlarge

Last month, the total value was $119,939 and the increase through August was $3,600 (roughly 3%), however, the yield remained at about 4.45% for a stream of income annually of $4,882. Roughly 50% more than the ETFOP income stream.

Although the ETFOP beat the BTDP by $700 for the month in total return, it is clear that there is daylight showing between the two portfolios going into 6 full months of this experiment.

The BTDP has increased by roughly $13,000 in total returns vs. an increase of about $7,000 for the ETFOP. Just about 85% more for nearly the same original investment dollars.

The Bottom Line

While it is too early to tell, and the ETFOP had a slightly better return for August, it is becoming more evident that being an active manager of a dividend income portfolio like the BTDP far exceeds the passive approach.

We are still seeking alpha, however, so it will be even more interesting in the months ahead.

I hope more and more folks are following this experiment.

Disclosure: The author is long AAPL, CVX, GE, JNJ, MCD, MSFT, T, XOM.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.