Seeking Alpha
Profile| Send Message|
( followers)  

As we continue to look for alternatives to manage our way through the current uncertainties, we pick up a selection from the Fool's Dan Caplinger. He is looking at dividend bearing equities from smaller companies. Not all U.S. equities behave in the same way and sometimes smaller cap companies give you better value.

It is important to note that generally, in times of stress, investors move to the safety of large cap stocks and so these may be considered too risky. However, they are considered because they provide some diversification, which may be welcomed by some.

Dan's approach to selecting the stocks was to review the WisdomTree SmallCap Dividend ETF (NYSEARCA:DES) which uses a methodology that weights small-cap companies by their dividend payout. Here are the top stocks with the largest weighting in the ETF:

Company

Trailing Dividend Yield

Weighting in ETF

Vector Group (NYSE:VGR) 9.5% 1.44%
UIL Holdings (NYSE:UIL) 5.4% 1.21%
Prospect Capital (NASDAQ:PSEC) 14.5% 1.06%
Medical Properties Trust (NYSE:MPW) 8.7% 1.02%
Potlatch (NASDAQ:PCH) 6.6% 1.00%
Solar Capital (NASDAQ:SLRC) 12% 0.89%
National Health Investors (NYSE:NHI) 5.6% 0.87%

Source: WisdomTree; Yahoo! Finance.

This is an interesting filter and we will accept the premise but then measure the returns against a benchmark set of dividend ETFs.

The benchmark ETFs are:

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,
EQUITY DVY (iShares Dow Jones Select Dividend Index,
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
Retirement Income ETFs Tactical Asset Allocation Moderate 2% 33% 10% 82% 9% 63%
Retirement Income ETFs Strategic Asset Allocation Moderate -1% -7% 4% 18% 3% 8%
Small Stocks Packing Big Dividend Punch 6% 27%

Unfortunately, we only have one year's worth of data which is too short to come to any conclusion at this point. We can see that it has demonstrated a precipitous fall in value which is expected as stocks were pummeled and there would be flight to larger cap stocks for their safety. When we emerge from this period of uncertainty, it will be interesting to see whether these stocks rebound.

Three Month Chart


(Click to enlarge)

One Year Chart
(Click to enlarge)

Three Year Chart
(Click to enlarge)

Five Year Chart
(Click to enlarge)

Full details

The dividend story is key in this market to deliver some gains. However, we need more time to assess this selection to see how it behaves under different circumstances.

For now, I'm sticking with the diversified set of ETFs

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.

Source: 7 Small Stocks Pack A Dividend Punch