Seeking Alpha
Profile| Send Message|
( followers)  

Life moves quickly. Already this year we have seen uprisings, natural and man made disasters, Tax season has come and gone and the Royal Wedding is everywhere and will soon be gone. How many of our New Year's resolutions are still intact? The tyranny of the urgent may tempt us to delay until disaster strikes and the cost to repair, dwarfs the cost to prevent.

Many working people put off their retirement investing -- just one more year until it has becomes a "hair on fire" problem.

The problem is that we can easily be overwhelmed and shut down. The way to solve this is to focus on what works in the long term -- that is what long term investing is all about -- and allow that to filter out what may work in the short term but won't stand the test of time.

We continue to examine different portfolios to see what we can learn and use to further our investment portfolios.

Miriam Reimer of writes that the dividend universe has been out of favor for most retail investors in the last few years, according to Lawrence Glazer, managing partner with Mayflower Advisors. The pendulum, however, has turned back toward the investment strategy lately as market watchers hedge against inflation and look for rising income streams.

To capture a proxy for domestic dividend-paying stocks, Glazer suggested considering ETFs like the iShares Dow Jones Select Dividend or SPDR S&P Dividend (SDY), and for international dividend payers, the iShares Dow Jones International Select Dividend Index Fund (IDV). The latter boasts a higher yield, he said, and "speaks to the idea of getting paid to go outside the U.S. and take on a little more risk." For a long-term sustainable dividend income, Glazer advised to look at an ETF like the Vanguard Dividend Appreciation (VIG). Its yield is only around 2%, but "investors need to think about total return and appreciation potential," Glazer said.

We entered the ten choices into our system and then compared it with a balanced portfolio of Dividend producing ETFs for comparison. We track this back for five years. We can go further but the ETFs don't have the same longevity and so we stick with five years.

Fund in this portfolio Price Percentage
Hewlett Packard HPQ 40.89 6.22%
Fifth Third Bancorp SLW 41.7 19.99%
Oracle ORCL 34.11 10.60%
Fifth Third Bancorp FITB 13.32 8.86%
Qualcomm QCOM 55.27 10.96%
Walmart WMT 53.69 8.33%
Staples SPLS 20.67 7.28%
Bank NY Mellon BK 28.54 7.46%
Gold Corp GG 54.93 11.37%
Proctor and Gamble PG 63.72 8.93%

We compare this with a portfolio of dividend ETF's

Asset Class Ticker Name
LARGE BLEND VIG Vanguard Dividend Appreciation ETF
LARGE VALUE DVY iShares Dow Jones Select Dividend Index
MID-CAP VALUE PEY PowerShares HighYield Dividend Achievers
MISCELLANEOUS SECTOR PFF iShares S&P U.S. Preferred Stock Index
Foreign Large Value PID PowerShares Intl Dividend Achievers
Foreign Large Value IDV iShares Dow Jones Intl Select Div Idx
REAL ESTATE IYR iShares Dow Jones US Real Estate
REAL ESTATE ICF iShares Cohen & Steers Realty Majors
Global Real Estate RWX SPDR DJ Wilshire Intl Real Estate
High Yield Bond HYG iShares iBoxx $ High Yield Corporate Bd
Long-Term Bond LQD iShares iBoxx $ Invest Grade Corp Bond
Long-Term Bond VCLT Vanguard Long-Term Corp Bond Idx ETF
Intermediate-Term Bond CIU iShares Barclays Intermediate Credit Bd
Intermediate-Term Bond CORP PIMCO Investment Grade Corp Bd Index ETF
Short-Term Bond CSJ iShares Barclays 1-3 Year Credit Bond
Short-Term Bond VCSH Vanguard Short-Term Corp Bd Idx ETF
Intermediate Government IEI iShares Barclays 3-7 Year Treasury Bond
LONG GOVERNMENT IEF iShares Barclays 7-10 Year Treasury
SHORT GOVERNMENT SHY iShares Barclays 1-3 Year Treasury Bond
LONG GOVERNMENT TLT iShares Barclays 20+ Year Treas Bond
Inflation-Protected Bond TIP iShares Barclays TIPS Bond
Intermediate-Term Bond MBB iShares Barclays MBS Bond
Muni National Long MUB iShares S&P National Municipal Bond
Muni National Short SHM SPDR Lehman Short Term Municipal Bond
WORLD BOND BWX SPDR Lehman Intl Treasury Bond
Emerging Markets Bond EMB iShares JPMorgan USD Emerg Markets Bond
Emerging Markets Bond PCY PowerShares Emerging Mkts Sovereign Debt
LARGE VALUE VYM Vanguard High Dividend Yield Indx ETF
LARGE VALUE FVD First Trust Value Line Dividend Index
WORLD BOND WIP SPDR DB Intl Govt Infl-Protected Bond

The comparison is

Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
The Street`s 10 Dividend Stocks 19% 99% 5% 15% 4% 8%
Retirement Income ETFs Strategic Asset Allocation Moderate 11% 84% 3% 17% 5% 24%
Retirement Income ETFs Tactical Asset Allocation Moderate 6% 51% 9% 73% 10% 64%

Full Data

Three Month Chart (Click to enlarge) One Year Chart (Click to enlarge) Three Year Chart (Click to enlarge) Five Year Chart (Click to enlarge)

The dividend stocks underperform the more diversified portfolio -- which is what we would expect as the companies picked are not ones on a rapid growth path. Rather, they are well established companies that will continue to deliver consistent dividends.

It seems more effective to pick a diversified portfolio of dividend ETFs and benefit from broader diversification. If there is a desire to speculate a little more with some stocks, perhaps it would be better to look for the high fliers with the risk that you might win big or lose it all.

We will keep looking to see if there are better choices of stocks that give better risk adjusted returns.

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

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Source: 10 Dividend Stocks Up Against a Diversified ETF Portfolio