Dividend stocks continue to take pride of place as they provide income as well as growth and are going to be an area of focus for some time to come.
By Dan Caplinger of the Motley Fool reports on five that may not be on many people's RADAR. He looked for stocks that met two simple tests: a dividend yield above 3% and a price-to-book ratio below one.
High yield was a simple filter but picking price-to-book as a measure of value wasn't as clear. However, with the ongoing systemic stresses that potentially distort earnings, looking at an alternative valuation measure like book value can reveal some stocks that others may have missed. He then goes on to outline his top five
Stock | Dividend Yield | Price-to-Book Ratio |
|---|---|---|
| ArcelorMittal (MT) | 3.2% | 0.55 |
| Banco Santander (STD) | 5.9% | 0.71 |
| CME Group (CME) | 3.2% | 0.87 |
| Encana (ECA) | 4% | 0.91 |
| France Telecom (FTE) | 9.1% | 0.98 |
Source: Motley Fool CAPS. As of March 5.
This is a different list of companies that have broad markets and makes an interesting list. A bargain stock can be a source of growth or trouble so it is important to be cautious. However, this is a list worth measuring against our dividend bearing ETF portfolio:
| 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 |
- 5 Dividend Stocks To Buy -- Total of $10K invested equally in each stock
- 5 Dividend Bargains From Surprising Place -- 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 Return | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|---|
| Retirement Income ETFs Tactical Asset Allocation Moderate | 1% | 1% | 14% | 9% | 77% | 8% | 61% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 3% | 1% | 18% | 20% | 133% | 3% | 12% |
| 5 Dividend Bargains From Surprising Places | 4% | -30% | -81% | 3% | 8% | -11% | -29% |
Well the bargain basement may not be pretty and we can see that these stocks have had a torrid time in the one and five year time horizons. Given that these stocks are largely European, I think that the debt crisis trumps even strong performance. I think being outside of the Euro currency may give you some protection (Sweden, Switzerland) but for those in it, there is no escaping being caught up in it.
Three Month Chart One Year Chart
Three Year Chart
Five Year Chart
Despite these being strong companies, they can't escape the Euro turmoil. There is very likely a day that company strength will be enough but I don't think it is today. This is something to watch to see if there is a tipping point and the stocks start to rebound.
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.
