5 Dividend Stocks Chosen by Experts but Beaten by Long-Term Selections

by: MyPlanIQ

Jordan DiPietro outlines five amazing dividend stocks, vetted by Morningstar and their top stock pickers.

Dividend-heavy ETFs do well because they deliver income to shareholders, but academics and investors alike long have praised the ability of dividend-paying stocks to outperform their nonpaying brethren. Dividend stocks have outperformed the market over the long-haul as well as providing investors income along the way. This is especially important for retirees as they learn to balance their income with expenses.

Despite the obvious allure of dividend stocks, investors still aren't catching on. According to Morningstar, as of the end of May, inflows to U.S. stock funds were $25 billion, while inflows to bond funds were nearly $80 billion.

Morningstar polled their “Ultimate Stock Pickers” (their top 26 managers) and found stocks that were the most widely held by all of them. The only criterion was that the stocks were held by at least five of the managers, and that they paid a minimum yield of 3.5%. Below are some stats on five stocks they chose:

Dividend Yield Payout Ratio Years Paying Dividend
Vodafone (NYSE: VOD) 6.1% 56.1% 21 years
Nestle (OTC: NSRGY.PK) 3.5% 15.9% 10 years
Eli Lilly (NYSE: LLY) 5.3% 44.5% 29 years
GlaxoSmithKline (NYSE: GSK) 5.1% 179.1% 24 years
Total (NYSE: TOT) 5.8% 42.8% 19 years

Source: Morningstar data; Capital IQ, a division of Standard & Poor’s

We have found that there is wisdom in the counsel of many and it will be interesting to compare the returns with another recommended dividend portfolio that we previously reported. Motley Fool's Matt Koppenheffer selected what he considered five stocks for long term dividend performance. All five have dividend yields well in excess of the S&P's, trade at reasonable valuations.


Dividend Yield

Johnson & Johnson (NYSE:JNJ) 3.4%
McDonald's (NYSE:MCD) 3%
Kimberly-Clark (NYSE:KMB) 4.1%
Sysco (NYSE:SYY) 3.3%
Mattel (NYSE: MAT) 3.5%

We will also compare this with our ETF dividend portfolio benchmark:

Asset Fund in this portfolio
REAL ESTATE ICF(iShares Cohen & Steers Realty Majors)
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)
Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Fools 5 Great Dividend Stocks Chosen By The Experts 30% 192% 3% 9% 7% 27%
Fools 5 Dividend Payers to Save your Portfolio 18% 166% 12% 57% 13% 65%
Retirement Income ETFs Strategic Asset Allocation Moderate 15% 152% 4% 21% 5% 25%
Retirement Income ETFs Tactical Asset Allocation Moderate 12% 123% 10% 82% 11% 80%

One Year Chart (Click to enlarge)
Five Year Chart

The more detailed analysis and graphs show the volatility of the stock portfolios which has suffered in recent days.

The longer term charts are certainly instructive as we see the experts' stocks doing well in the short term but dropping down in the long term. To be fair, both stock portfolios perform well compared to the buy and hold ETF portfolio, bearing in mind they are the ultimate in laziness "fire and forget." However, it should be recognized that the stock pickers from the professional organizations are more likely to trade. As such, they may have a shorter term interest in the stocks whereas the long term investor is just that, long term.

It should also be noted that both stock portfolios have performed reasonably well in the very short term. When some portfolios may drop rapidly in these stressful times, these are performing nicely.

It is encouraging to see that the experts have made good selections. But when it comes to long term dividend portfolios, asking yourself who you think will be there thirty years from now can give an indication of where to invest.

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

Disclaimer: We do 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.