The Dow's 10 Best Dividend Stocks

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Includes: CVX, HPQ, IBM, JPM, KO, MDLZ, MRK, MSFT, UTX, WMT
by: MyPlanIQ

For the long term investor, dividend stocks have significant benefits in terms of providing income and growth potential. We continue to examine different portfolios to see what we can learn and use to further our investment portfolios.

We are looking at the hit parade of dividend stocks. We have already looked at the bottom 20 and we now look at the top ten stocks and we can compare their performance along with the performance of a dividend ETF portfolio.

Jake Lynch of The Street compared the pessimism of Pimco and Ken Fisher in terms of whether there is a strong future for stocks. He concluded that the case for stocks is compelling, given the low yields offered by bonds and the government's commitment to accelerate economic growth. Among the cheapest stocks in the U.S. market are Dow components, which offer clean balance sheets, powerful brands and emerging-markets exposure.

The top ten equities according to this report are:

  • KO Coca-Cola Company
  • JPMJPMorgan Chase & Co
  • CVX Chevron Corporation
  • MSFT Microsoft Corporation.
  • UTX United Technologies
  • MRK Merck & Co Inc
  • HPQ Hewlett-Packard Co.
  • KFT Kraft Foods Inc.
  • WMT Wal-Mart Stores Inc.
  • IBM International Business Machines.

We entered these funds into our system and then compared it with a balanced portfolio of Dividend producing ETFs.

Asset Fund in this portfolio
REAL ESTATE ICF (iShares Cohen & Steers Realty Majors)
CASH CASH
FIXED INCOME TIP (iShares Barclays TIPS Bond)
Emerging Market VWO (Vanguard Emerging Markets Stock ETF)
US EQUITY DVY (iShares Dow Jones Select Dividend Index)
US EQUITY VIG (Vanguard Dividend Appreciation ETF)
INTERNATIONAL EQUITY IDV (iShares Dow Jones Intl Select Div Idx)
High Yield Bond HYG (iShares iBoxx $ High Yield Corporate Bd)
INTERNATIONAL BONDS EMB (iShares JPMorgan USD Emerg Markets Bond)
Click to enlarge
  • Streets Top Ten Dividend Stocks -- Total of $10K invested equally in each stock
  • Streets 10 Dividend Stocks That Can Be Beaten -- Total of $10K invested equally in each stock
  • Streets Bottom 10 Dividend Stocks -- Total of $10K invested equally in each stock
  • Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
  • Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)

Portfolio Performance Comparison

Portfolio/Fund Name

1Yr AR

1Yr Sharpe

3Yr AR

3Yr Sharpe

5Yr AR

5Yr Sharpe

Streets Bottom 10 Dividend Stocks

35%

212%

4%

14%

5%

16%

Streets Top Ten Dividend Stocks

34%

197%

5%

17%

9%

29%

Retirement Income ETFs Strategic Asset Allocation Moderate

19%

186%

3%

16%

5%

25%

Streets 10 Dividend Stocks That Can Be Beaten

16%

114%

3%

8%

5%

16%

Retirement Income ETFs Tactical Asset Allocation Moderate

12%

123%

10%

76%

11%

75%

Click to enlarge

Three Month Chart

(Click charts to enlarge)

The more detailed analysis and graphs show the volatility of the stock portfolio which has performed well in the short term but not in the longer term.

This is more what we are looking for in a dividend stock portfolio -- consistent returns over a longer period. We note, however, that the Sharpe ratios are lower than the ETF portfolio but this has to be contrasted with the more activity required for the ETF portfolio in terms of monthly tuning.

This is an interesting contrast but not compelling against some of the other returns we have seen -- for example:

There is always a danger of chasing returns or trying to pick a portfolio from what has done well in the past. However, it seems to me that the Dow criteria does not produce compelling results where the other two criteria do.

Disclosure: 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.