Comparing the Fool's 5 Best Stocks to a Dividend Heavy ETF Portfolio

by: MyPlanIQ

Jim Royal of the Motley Fool picks 5 stocks you can buy right now on the cheap and sit back and (hopefully) watch them move higher. Jim poses the question: Just how did these bargains come about?

His answer: Many investors are caught up in a blind panic at the moment - exactly the best time to buy. You can read more here. Below are the 5 stocks Royal thinks will continue to do well, regardless of current general market concerns. The stocks are reasonably priced, offer very attractive dividends, and even give you great downside protection as some investors grow concerned about the rest of 2011.


Dividend Yield


Annaly Capital (NYSE:NLY) 13.5% P/B = 1.17
Wal-Mart (NYSE:WMT) 2.8% P/E = 12.3
Exelon (NYSE:EXC) 5.1% P/E = 11.1
Brookfield Infrastructure Partners (NYSE:BIP) 5.1% P/FFO = 13.4
McDonald's (NYSE:MCD) 3% P/E = 17.3

Source: Capital IQ, a division of Standard & Poor's. P/B = price/book, P/E = price/earnings, P/FFO = price/funds from operations.

Each company offers a solid dividend and the potential for even more in the years ahead.

We will enter this portfolio and compare it with the Fool's Matt Koppenheffer selection of 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 (MCD) 3%
Kimberly-Clark (NYSE:KMB) 4.1%
Sysco (NYSE:SYY) 3.3%
Mattel (NASDAQ: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
Fool's 5 Stocks for the rest of 2011 27% 286% 8% 34%
Fool's 5 Dividend Payers to Save your Portfolio 20% 166% 13% 57% 13% 65%
Retirement Income ETFs Strategic Asset Allocation Moderate 15% 154% 5% 23% 6% 26%
Retirement Income ETFs Tactical Asset Allocation Moderate 11% 118% 11% 86% 12% 83%
Three Month Chart
click to enlarge
One Year Chart Three Year Chart

This is an interesting selection with a mixture of well known names and some less so. The portfolio only goes back three years because that is the age of the youngest stock. Despite that, it gives an interesting snapshot of its performance. Once again, it is important not to be lured away by the short term performance but to take the longer view. In the short term, both stock portfolios outperform the ETF counterparts but the longer the time horizon, the better the ETFs look along with the reference portfolio of the payers that save your portfolio.

We will continue to track this portfolio but it the rest of the 2011 selection doesn't get my vote over the ETF or other stock portfolio.

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.

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