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We have enjoyed a period of strong stock returns and there has been a desire to look for higher returns even at the cost of increased volatility. Over the past few weeks, we have seen a changing of sentiment and a move to less risky assets. Investing for the long term requires a portfolio that can manage both up and down cycles unless you are willing to jump in and make changes whenever there is a blip in the market -- and assuming you are prescient enough to know where to go. Six weeks ago, Jonas Elmerraji of Stockpickr selected five stocks that have boosted their dividends and we put them into a portfolio to see how they compare against a benchmark set of ETFs. This is a list of the stocks.

  • Exxon Mobil (NYSE:XOM)
  • Kimberly-Clark (NYSE:KMB)
  • PPG Industries (NYSE:PPG)
  • Wells Fargo (NYSE:WFC)
  • Aetna (NYSE:AET)

Four weeks ago, he suggested five more stocks.

  • CSX (NYSE:CSX)
  • Harley Davidson (NYSE:HOG)
  • PepsiCo Inc. (NYSE:PEP)
  • Legg Mason Inc. (NYSE:LM)
  • Marriott International, Inc. (NASDAQ:MAR)

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)

The goal is to track the behavior of the portfolios and compare them as the year progresses and we encounter the slings and arrows of outrageous fortune that is the day-to-day reality.

May Portfolio Performance Comparison

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Next 5 Dividend Stocks Rewarding Shareholders 22% 103% 3% 8% 3% 6%
5 Dividend Stocks Rewarding Shareholders 20% 120% 5% 15% 5% 14%
Retirement Income ETFs Strategic Asset Allocation Moderate 16% 130% 3% 13% 5% 22%
Retirement Income ETFs Tactical Asset Allocation Moderate 9% 83% 9% 69% 10% 68%

June Portfolio Performance Comparison

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Next 5 Dividend Stocks Rewarding Shareholders 32% 168% 5% 14% 5% 12%
5 Dividend Stocks Rewarding Shareholders 26% 165% 6% 17% 5% 15%
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%

Three-Month Chart

[Click to enlarge]The more detailed analysis and graphs show the volatility of the stock portfolios which has suffered in recent days. The graph reveals the drop in the stock portfolio, particularly in recent days as US equities have been hit with worries from the euro zone.

We also note that the tactical strategy has closed the gap on the buy and hold strategy. Over the past year, buy and hold has outperformed the tactical strategy but we are seeing the benefits of shifting assets out of the assets that are under most stress. As of June 16, the tactical strategy for the dividend portfolio has international bonds, real estate and emerging market ETFs selected.

It is true that with a dividend portfolio, you can collect dividends and wait out the storm and hope that the stocks recover. Having a more broadly based portfolio reduces the volatility and may be easier to live with.

Source: Are Stockpickr's 5 Dividend Picks Still Rewarding Shareholders?