We continue to investigate dividend alternatives to fixed income investments. It's important not to overstate the impact of dividend stocks -- they are different than bonds -- but increasingly a portfolio with a bias towards dividends is an important part of a retirement portfolio where some form of income stream is important.
The Street.com came up with 20 mid-cap dividend stars, which appeals to me on two levels:
- We previously examined a three stocks with dividends and growth and found them to be lacking. Looking at Mid-Cap stocks is a way of moving towards increasing the risk and return variable.
- Having 20 from which to choose gives greater diversity, which is always a good thing. I know that I am not a stock picker -- I prefer to buy the market over the long haul.
Here is their list:
|Apollo Investment (AINV)||14.9%|
|New York Bank (NYB)||7.9%|
|Omega Healthcare (OHI)||7.8%|
|Hospitality Properites (HPT)||7.4%|
|Old Republich (ORI)||7.2%|
|Senior Housing Properties (SNH)||6.8%|
|Astoria Financial (AF)||6.1%|
|National Retail Properties (NNN)||5.7%|
|Valley National (VLY)||5.7%|
|Liberty Property (LRY)||5.6%|
|Mercury General (MCY)||5.5%|
|Highwoods Properties (HIW)||5.1%|
|Duke Reality (DRE)||5.0%|
|MDC Holdings (MDC)||4.8%|
|Reality Income (O)||4.8%|
|Corporate Office Properties (OFC)||4.6%|
|Equity One (EQY)||4.6%|
Source: The Street.com
The article goes on to highlight five that are especially attractive:
- Apollo Investment
- MDC Holdings
- Omega Hospitality Trust
I am going to compare their 20 and their top 5 with our benchmark dividend yielding ETF portfolio.
To see these stocks in action, visit the are High-Yielding Mid-Caps portfolio.
|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|
- The Streets Top 5 Midcap Dividend Companies-- Total of $10K invested equally in each stock
- The Streets 20 Dividend Stars Among the Mid-Cap Crowd -- 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%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||2%||15%||16%||102%||2%||8%|
|The Streets Top 5 Midcap Dividend Companies||-10%||-28%||16%||42%||-2%||-6%|
|The Streets 20 Dividend Stars Among the Mid-Cap Crowd||-3%||-10%||16%||44%||-2%||-6%|
This selection, whether small or large, does not present a pretty picture. Moving into Mid Cap territory, you are going to see more volatility and that is really what you get. What's interesting to me is that the additional equities doesn't bring any better risk adjusted returns.
Three Month Chart One Year Chart Three Year Chart Five Year Chart
The short term performance (three months) looks attractive as there is a move towards more risk and these types of equities look appealing. However, over the longer term horizon, they don't look nearly as attractive and I think I will give this approach a miss for long term investing. For those who are willing to be more active traders, there may be a momentum approach for which this might be an part of a solution.
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.