Warren Buffett has been such a stellar investor for such a long period of time that one could do worse than just following in his footsteps, which is what a large slice of the investing population does. By drilling down into which are his best dividend payers, we can hopefully find a portfolio that will be good for the long run as well as providing income through these testing times.
Here are his highest yielders:
Return on Equity (TTM)
|GlaxoSmithKline (NYSE: GSK)||5.2%||36.3|
|M&T Bank (NYSE: MTB)||3.8%||10.7|
|ConocoPhillips (NYSE: COP)||3.6%||17.0|
|Johnson & Johnson (NYSE: JNJ)||3.4%||20.2|
|General Electric (NYSE: GE)||3.3%||11.6|
|Kraft Foods (NYSE: KFT)||3.3%||8.5|
|Procter & Gamble (NYSE: PG)||3.2%||18.2|
Source: EDGAR filing on Aug. 15. TTM = trailing 12 months.
This is a well diversified list of US assets. This is not dependent on any one sector of the economy but it is missing international, real estate and commodity assets as well as anything by way of fixed income.
We recently reviewed Jim Royal's dividend choices and we will compare this with the Oracle from Omaha as well as our ETF dividend portfolio benchmark to see how they compare and what this tells us.
|Asset||Fund in 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)|
- Jim Royal`s August 2011 Huge Dividend Play -- Total of $10K invested equally in each stock
- August 2011 7 Highest-Yielding Buffett 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/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||8%||84%||11%||81%||10%||71%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||8%||67%||4%||17%||4%||16%|
|August 2011 7 Highest-Yielding Buffett Stocks||13%||82%||-1%||-4%||0%||-4%|
|Jim Royal`s August 2011 Huge Dividend Play||2%||11%||18%||56%|
The conclusion I draw from this list is that we can be led astray by the returns of the moment. Buffett looks for long term value and survivability and all of his selections are good choices but US stocks have been through the wringer and a more diversified set of ETFs gives the best performance over the long term.
Three Month Chart
click to enlarge
The comparison between the ETF portfolio and the stock portfolios are instructive -- more diversification gives you less volatility. Even with the high quality picks from Buffett, you want more diversification to take out the heart stopping drops that the market deals out from time to time. We so quickly forget the pain of the past and chase returns rather than sticking with the tried and true diversification linked to a consistent investment approach.
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.