As we continue to muddle through some of the most challenging market conditions in living memory, we come back to dividend stocks that have a significant track record of increasing dividends. These stocks can be used to help offset the poor performance of bonds in providing income and growth potential. There is significant debate about the role of bonds in a long-term stock portfolio, but whatever the conclusion, adding strong, dividend bearing stocks is worth consideration.
Viktor Puskorius, Benzinga Staff Writer highlighted five that have increased their dividends for five consecutive years. I split his selection into what I would call the dividend aristocrats - household names that have a very long history (over 50 years) of dividends - and other companies that are less well known and have a shorter history of dividends.
These need no introduction and I don't intend to give them any.
- CR Bard (BCR): Design, manufacture, package, distribute, and sell medical, surgical, diagnostic, and patient care devices.
- Energen (EGN): Acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids in the continental United States.
- Valspar (VAL): Manufactures and distributes coatings, paints, and related products worldwide.
The market cap of these companies range from nearly $9B down to around $3B, so none of them are small - which I like. There is also a good range of market segments that provide diversification and, hopefully, reduces volatility. We will benchmark this against our dividend bearing ETF portfolio.
Funds 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|
- Five Stocks That Have Boosted Dividends for Five Consecutive Years - 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
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||-1.0%||1.4%||8.2%||76.8%||13.0%||119.1%||7.3%||56.6%|
|Five Stocks That Have Boosted Dividends for Five Consecutive Years||-1.2%||8.8%||4.9%||20.5%||16.5%||89.7%||5.8%||23.1%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||-0.9%||2.6%||1.5%||10.2%||11.1%||101.2%||1.6%||6.5%|
*NOT annualized **YTD: Year to Date
As I review the table, I see the stock selections sitting in between the two ETF portfolios. Bear in mind that the stock portfolios have been fire and forget - they are not modified whereas the ETF portfolios have regular rebalancing intervention. Given that this is a selection of five, the returns and volatility are decent.
As we look over the shorter period where stocks have been subject to significant volatility, the stock portfolio suffers, but not having an option to get into other asset classes such as real estate and some form of fixed income to find some balance. In particular, the TAA portfolio has done a better job of smoothing out some of the bumps. I also think that the YTD number for the stock selection is a little misleading, as this selection tumbled in late 2011 and so is recovering from that.
Over the longer timeframe, we see how the tactical asset allocation has performed well by reducing the drops, rather than maximizing the increases. I think that is a better way to go. However, for those who want a stock selection, this has certainly shown resilience and is a good mix of market sectors.
Disclosure: I am long MMM.
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.