James Cullen managed Cullen High Dividend Equity fund (CHDEX) since 2000. He sifts through the universe of large companies using several criteria: stocks must have dividend payouts greater than the average yield of the S&P 500 (NYSEARCA:SPY), and they must have price-to-earnings, price-to-book, and debt-to-capital ratios below the S&P 500 average. Beyond that, the company should be likely to continually increase its payouts in the future. The fund can invest up to 30% of its assets in foreign stocks.
The dividend stock pick strategy has worked well: in 2011, it returned about 10% and in the last three years, it returned 14% annually.
The following are the top nine stock holdings of CHDEX:
Tobacco company Altria offers the highest yield: 5.7%, followed by Oil company Royal Dutch Shell and drug company Eli Lilly at a 4.9% yield. The rest of the stocks all offer about 3%-4% yields. Microsoft , a once high-flying technology company, is now getting mature and offers 2.8% annual yield that beats SPY's 2% yield. Among these nine stocks, three are energy, two are consumer foods (KFT, MO), two drug companies (BMY, LLY), one an electricity and gas utility company (Dominion D) and one technology . These are a great combination to form a portfolio that is defensive in the current uncertain market environment.
The following compares the fund performance with two diversified retirement income ETF portfolios:
Portfolio Performance Comparison
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Strategic Asset Allocation Risk Profile 0||-3%||-11%||19%||73%||1%||0%|
|Retirement Income ETFs Tactical Asset Allocation Risk Profile 0||-3%||-19%||13%||63%||10%||46%|
To summarize, the nine stocks that passed Cullen's strict dividend and company fundamental tests are good candidate stocks for income investors to form an income 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.