Dividends are going to be on everybody's minds as we look for a mixture of growth and income in these troubled times. Austin Smith of the Motley Fool noted that dividend paying equities are among the best wealth-building vehicles available.We have noted that there are companies offering dividends that they can't really afford to attract buyers and so it's important to find those companies who are both safe and paying dividends.
To test each company's dividend safety and quality, Austin looked at yield, payout ratio, coverage ratio, and five-year dividend growth. That narrowed the list down to:
Company Name | Payout Ratio % | Dividend Yield | 5-Year Dividend CAGR | Total Debt/Equity | Interest Coverage Ratio |
|---|---|---|---|---|---|
General Electric (GE) | 41.1 | 3.61 | (10.3) | 385.4 | 21.7 |
DuPont (DD) | 44.0 | 3.39 | 2.07 | 105.4 | 10.3 |
Intel (INTC) | 30.8 | 3.34 | 13.9 | 4.59 | NM |
Procter & Gamble (PG) | 49.8 | 3.19 | 11.3 | 47.1 | 22.3 |
Chevron (CVX) | 22.1 | 3.05 | 9.11 | 10.8 | NM |
Source: S&P Capital IQ. NM= not meaningful.
This is definitely a group of equities I would like to measure and track as they can provide stability and income.
We will be comparing them with 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 |
- The Safest and Best Dividends on the Dow -- 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% | 9% | 9% | 72% | 8% | 55% |
| The Safest and Best Dividends on the Dow | 12% | 52% | 21% | 91% | 5% | 15% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 1% | 6% | 16% | 98% | 2% | 7% |
This is a selection of five large cap U.S. stocks and so it should only represent a portion of an overall portfolio. Having said that, I like this filter. It is large cap and has dividends and is based on companies who should be able to sustain their payout ratios. In today's turbulence, I think this is a selection worth considering.
Three Month Chart One Year Chart
Three Year Chart
Five Year Chart
The graphs show me that while the large cap stocks have managed to match the more actively traded ETF portfolio with less work, there has been noticeable improvement as the sentiment shifted to safety and dividends. I don't see that underlying sentiment changing in the short term
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
