Retirement Strategy: ETF Portfolio Versus The Stock Only Portfolio, A Glaring Update

by: Regarded Solutions


This ETF only portfolio is for the passive investor who wants to have a wide assortment of dividend champion stocks.

Our stock only portfolio is our "Buy The Dips Portfolio" or BTDP for investors who will actively manage their holdings.

Our second update already shows how managing a portfolio of stocks only far outperforms a great selection of ETFs that invest in the same stocks.

This is our second update in this experiment. Last month, the ETF portfolio had a slight edge because of the payment of dividends, this month our stock-only portfolio virtually blew the lid off of this exercise with both overall growth, as well as dividend income.

While this journey is far from over, it is very interesting to see how well owning the same stocks that the ETFs own is far superior to owning the ETFs. Of course I am getting way ahead of myself, but I really was surprised by the size of the outperformance by our BTDP over our ETFOP this past month.

Let's Get Right To It

The ETFOP currently consists of the following ETFs: Vanguard High Dividend Yield Index Fund (NYSEARCA:VYM), SPDR S&P Dividend ETF (NYSEARCA:SDY), WisdomTree LargeCap Dividend Fund (NYSEARCA:DLN), Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), and Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD).

These ETFs are widely recognized to be the best of breed for dividend growth investors who seek to have a position in a very wide assortment of stocks without having to do anything but own the ETF. The passive nature of this approach lends itself to many folks who do not care to be bothered with managing their own portfolios, and will leave the decision making up to the ETF manager.

This type of portfolio is also appealing to those folks who are already retired and might be feeling the stress of aging when it comes to being actively involved in portfolio management. The allocation and diversification in each ETF is extremely spread out and offers unique opportunities for dividend-seeking investors to have positions in many more stocks than most individual investors, without the stress of managing them.

Here is how this portfolio has performed after just two months of this experiment:

Symbol Shares Yield Dividend Yrly Income Share Price Tot. Cost Tot.Value 30-Apr Div/Cash
VYM 350 2.80% $1.75 613 $62.44 21854 22557 $64.45
SDY 350 2.45% $2.09 1004 $73.18 25613 26141 $74.69
DLN* 350 2.23% $1.56 522 $66.71 23349 24041 $68.69 $46
VIG 350 1.84% $1.39 486 $75.44 26399 26597 $75.99
SCHD 350 2.47% $0.90 315 $36.61 12764 13132 $37.52
x Totals 2.40% x 2940 x 109979 112514 x $46

*DLN pays monthly dividends

As you can see, there has been continued growth in the portfolio, and any growth is great. Thus far, the ETFOP is up by about 3% from the original investment of about $109k to over $112k, which does include dividends which have been added to the total value column.

Since last month was dividend month for the ETFs, this month only DLN will pay us, so $46.00 has been added to our total value.

The BTDP consists of the following stocks: AT&T (NYSE:T), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), Altria (NYSE:MO), McDonald's (NYSE:MCD), Chevron (NYSE:CVX), Apple (NASDAQ:AAPL) General Motors (NYSE:GM), Ford (NYSE:F), Microsoft (NASDAQ:MSFT), Wal-Mart (NYSE:WMT), and Pfizer (NYSE:PFE).

We did make a trade this month by selling General Motors and adding MO. While we took a loss, this assortment better reflects the holdings of the ETFs we have. That being said, we made no other moves within this portfolio for the month, although as an active portfolio manager, we could have chosen to make as many changes as we might want.

That is a clear advantage of the BTDP, but this month virtually nothing was done. After just 2 months, we are showing some dramatic results compared to our ETFOP.

Symbol Shares Orig.Yield Dividend Yrly Income Share Price Tot.Cost Tot. Value 30-Apr Div/Cash
T 300 5.60% 1.84 552 31.95 9585 10710 $35.70
XOM 100 2.80% 2.76 276 90.05 9005 10196 $101.96 69
JNJ 100 3.10% 2.8 280 86.78 8678 10129 $101.29 70
KO 200 3.00% 1.22 244 37.21 7442 8158 $40.79
PG 100 3.10% 2.41 241 75.71 7571 8255 $82.55
GE 300 3.60% 0.88 264 24.35 7305 8067 $26.89
MCD 100 3.50% 3.24 324 93.02 9302 10138 $101.38
CVX 100 3.60% 4 400 111.14 11114 12552 $125.52
AAPL 15 2.25% 13.16 197 526.45 7897 8851 $590.09 49
MO 100 5.20% 1.92 192 37.71 3771 4011 $40.11
F 400 3.20% 0.5 200 15.15 6060 6460 $16.15
MSFT 200 2.80% 1.12 224 40.16 8032 8080 $40.40 56
WMT 100 2.50% 1.92 192 76.11 7611 7971 $79.71
PFE 200 3.20% 1.04 208 32.18 6436 6256 $31.28 52
x x 3.60% x 3794 x 109809 120,130 x $296

Not only did this portfolio pay more in dividends (which has been added to the total value), but the growth in the individual stocks for the last 2 months have shown impressive gains.

From an initial investment of about $109k, the total value has increased by a pinch over 10% to about $120k. It should also be noted that some of our dividend winners once again gave us a pay raise. XOM, AAPL, CVX, and JNJ each announced dividend increases, and our yield on cost right now has gone from 3.60% to 3.68% in just a short period of time.

The dividend increases will hopefully be reflected in the ETFs when they go ex-dividend next time.

The Bottom Line

If this was only a two-month journey, the BTDP would be declared a winner by a knockout. Of course, it is still early, and it is prudent to keep this experiment going for as long as everyone gets something out of it.

For dividend income seeking investors, any equity that pays us to have a more secure financial future and retirement, is a good one.

Round 2 goes to the BTDP.

Disclosure: I am long AAPL, CVX, F, JNJ, KO, MCD, MO, MSFT, T, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.