The Motley Fool Stock Advisor recently recommended 13 high yielding dividend stocks. Their goal was to offer a wide variety of yields across a wide range of industries, coupled with solid growth potential. This is important because dividend-paying stocks historically outperform non-payers over the long term. According to Ned Davis Research, publicly traded companies paying a dividend returned 10.1% compared with just 4.1% for non-dividend companies between 1972 and 2006.
The article clustered the companies into 3: a set of companies that have consistently, over the long term, increased dividends, a group of companies with either high yields or rapidly increasing yields, and then a set of their own picks.
The companies they went for:
- Genuine Parts (NYSE: GPC)
- Emerson Electric (NYSE: EMR)
- 3M (NYSE: MMM)
- Diebold (NYSE: DBD)
- Dover (NYSE: DOV)
- McDonald's (NYSE: MCD)
- Procter & Gamble (NYSE:PG)
- Frontier Communications (NYSE: FTR)
- Annaly Capital (NYSE: NLY)
- Commercial Metals (NYSE: CMC)
- Vanguard Energy ETF (NYSE: VDE)
- Merck (NYSE: MRK)
- Warner Chilcott (Nasdaq: WCRX)
There are three things that are appealing about this list:
- Diversification: They have selected companies in different market segments that give international and real estate exposure
- Focus on dividends: Dividends will be increasingly important for income and, as Ned Davis Research pointed out, dividend focused companies tend to do better for the investor
- There is a focus on blue chip stocks
It will be interesting to see how they compare against our dividend oriented ETF portfolio.
The benchmark ETFs are:
|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,|
- 13 High Yielding 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 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%|
|13 High Yielding Stocks||-4%||-21%||6%||20%|
We haven't quite had enough history for the five year box to be filled in. That will come shortly. We can see that this portfolio has not fared well over the past year but better over the longer term.
One Year Chart
Three Year Chart
Five Year Chart
When we look at the graphs we can see that they have done decently over the longer term. They have beaten the buy and hold ETF portfolio.
The diversification and focus on dividends make this a portfolio worth considering. Perhaps the selection could be refined, and some of the more speculative choices replaced with something else. Nevertheless, this is a good effort in terms of finding a set of equities that are diversified and give dividend income.
Disclaimer: 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.