Dividend stocks are going to be a focus for the coming few years and we continue to look for ideas that can help provide income and mitigate against the worst of the continuing financial turbulence. Brendan Byrnes of the Motley Fool gives his view on where to invest for dividends in 2012 and we will follow what he has to say and measure it against our ETF benchmark.
- 3M (MMM) produces more than 50,000 products. Even in 2009, one of the "worst economic times in memory," according to CEO George Buckley, the company still released more than 1,000 new products.This is a double edged sword with diversified products to minimize the impact of any one business going south against not being a dominant player in one large market. It has also increased its dividend for 53 consecutive years.
- McDonald's (MCD) isn't a surprise having been on the RADAR for many companies. However, there has been some bad news recently. Despite this, Brendan believes 2012 could be very profitable. The company is yielding 2.9%, and has increased that dividend for 35 consecutive years.
- Sysco (SYY) is his surprise pick. Sysco is North America's leading food-service distributor, commanding 17% of the market. The company is the highest dividend yielder of the three, at 3.7%, and has been able to grow that dividend for 42 straight years.
It would be nice to have more than three equities but these are solid, long term companies with strong dividend performance and the ability to ride out tough times. These may not be exciting companies, but certainly worthy of respect. We will see how they measure up to our dividend ETF benchmark.
| 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 |
| 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 |
- Dividend Aristocrats for 2012 -- 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 | 1% | 5% | 9% | 70% | 8% | 57% |
| Dividend Aristocrats for 2012 | 15% | 86% | 18% | 101% | 8% | 36% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | -1% | -4% | 13% | 80% | 2% | 6% |
Bearing in mind that this is a selection of three equities and so there will be increased volatility, this is good performance. We can see that they have performed well over all of the time horizons and especially well over the shorter term where dividends are of increasing value.
Three Month Chart
(Click to enlarge)
One Year Chart
(Click to enlarge)
Three Year Chart
(Click to enlarge)
Five Year Chart
(Click to enlarge)
Over the long term, we can see that these dividend aristocrats out perform the buy and hold benchmark and are peaking in this tough environment. Not surprisingly, these long term companies are worth careful consideration.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.
