As we continue to examine ideas with strong dividend stocks, Patrick Martin of the Motley Fool focuses in on diversity. Having detailed knowledge of one market area can provide insight that you can turn to your advantage but it's always good to have diversity in your portfolio. He lists five companies in diversified markets:
- Johnson & Johnson (NYSE:JNJ) is a consumer goods company with over half its revenue from pharmaceuticals and medical devices. This is a blue chip dividend darling that also provides access into medical devices
- Waste Management (NYSE:WM) operates the largest network of landfills in the country, which gives it long term cost advantages, and it is a forward thinking company
- Yum Brands (NYSE:YUM) owns Taco Bell and KFC, but has a strong franchise in China, and is now turning its attention to India, which will likely be a strong growth area.
- Intel (NASDAQ:INTC) also benefits from growth in emerging markets, representing two thirds of PC demand
- Retail Opportunities Investment Corp. (NASDAQ:ROIC) is a small-cap REIT that specializes in rehabbing down-and-out shopping centers that it buys cheaply, and then either raises the rents or sells them at a profit -- having a REIT investment further broadens diversity and can lower volatility.
The Dividend bearing ETF portfolio is much more diversified in terms of asset classes and buying the market instead of picking stock. Let's see how they compare.
- Diversify With These 5 Dividend Stocks -- 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||YTD |
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||1%||2%||22%||10%||77%||7%||54%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||4%||2%||14%||18%||103%||2%||7%|
|Diversify With These 5 Dividend Stocks||6%||17%||91%|
As we review the chart and the current holdings, we note that because ROIC has only been around for a couple of years, we don't have much history. However, as far as it goes, it looks interesting. The mix is dominated by YUM and the other four are all holding up reasonably -- there isn't one that has really been hammered.
Three Month Chart One Year Chart Three Year Chart Five Year Chart
As I look over the longer-term horizon, this selection has done well. There are a couple of big drops, which is a concern, but otherwise, this is worth considering. Whether you take these stocks or not, I think it is worth ensuring you have a portfolio diversified into different markets and asset classes to give you some protection from market swings in a particular geographic area or market.
Disclosure: I am long (INTC).
Additional 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.