Lisa Springer of Street Authority sets out to find companies that combine strong growth prospects with better than average yields. This was of interest to me as, I am interested in yields for income and growth for, well, growth. I was curious to see whether her screening ends up with investment choices that would be appealing to those looking for income and retirment portfolios.
Lisa screens for:
- U.S. stocks
- Yielding 4% or better
- Annual earnings for per growth prospects of at least 15% in the next five years
The resulting list of 20 was further refined by eliminating companies that haven't grown their dividends over the past five years.
The top three:
- Meridian Bioscience Inc. (NASDAQ:VIVO) Yield: 4% Estimated five-year annual EPS growth: 16%. A leader in diagnostic test kits used to identify and treat common gastrointestinal, viral and respiratory infections. The company sells in more than 60 countries and so has worldwide reach.
- Watsco Inc. (NYSE:WSO) Yield: 4% Estimated five-year annual EPS growth: 18%. Watsco is the nation's leading distributor of air conditioning, heating and refrigeration equipment and related parts. It has over 500 US and Puerto Rico locations.
- Energy Transfer Partners LP (NYSE:ETP) Yield: 7% Estimated five-year annual EPS growth: 19%. Energy Transfer Partners operates gas pipelines in the Western and Southwestern United States, and owns the largest intrastate pipeline system in Texas.
Three equities is too small for a complete portfolio but it might be part of a larger portfolio. The companies are diversified and is worthy on being measured against our benchmark ETF portfolio.
|Asset||Fund in this portfolio|
|REAL ESTATE||(NYSEARCA:ICF) iShares Cohen & Steers Realty Majors|
|FIXED INCOME||(NYSEARCA:TIP) iShares Barclays TIPS Bond|
|Emerging Market||(NYSEARCA:VWO) Vanguard Emerging Markets Stock ETF|
|US EQUITY||(NYSEARCA:DVY) iShares Dow Jones Select Dividend Index|
|US EQUITY||(NYSEARCA:VIG) Vanguard Dividend Appreciation ETF|
|INTERNATIONAL EQUITY||(NYSEARCA:IDV) iShares Dow Jones Intl Select Div Idx|
|High Yield Bond||(NYSEARCA:HYG) iShares iBoxx $ High Yield Corporate Bd|
|INTERNATIONAL BONDS||(NYSEARCA:EMB) iShares JPMorgan USD Emerg Markets Bond|
- 3 High-Yield Stocks with Major Growth Prospects -- 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||4%||34%||10%||80%||7%||55%|
|3 High-Yield Stocks with Major Growth Prospects||-4%||-12%||11%||44%||5%||15%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||2%||15%||16%||102%||2%||8%|
When I look at this table, I see nothing really compelling about the returns compared to others I have reviewed. In addition I see that the risk adjusted returns are even less appealing. This is not an encouraging start.
Three-Month Chart One-Year Chart Three-Year Chart Five-Year Chart
When I look at the charts I get a little seasick! I know there are only three equities selected and that leads to increased volatility but this is too much for me. I think that this might be worth considering for somebody who is going to be more active and perhaps be able to trade out of some of the drops, but that isn't for me.
The filter -- strong dividends and growth -- is appealing. This selection is not. This could be the case of volatile stocks using dividends to pull in investors -- I am not saying that it is but, in any case, I would pass
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.