Comparing Dividend Stocks With ETFs

by: MyPlanIQ

There are so many different stock ideas and portfolios being recommended that we can easily be overwhelmed and shot down. The way to solve this is to focus on what works in the long term, allowing us to filter out what may work in the short term but won't stand the test of time.

We continue to examine different portfolios to see what we can learn and use to further our investment portfolios.

Jake Lynch of TheStreet compared the pessimism of Pimco and Ken Fisher in terms of whether there is a strong future for stocks. He concluded that the case for stocks is compelling, given the low yields offered by bonds and the government's commitment to accelerate economic growth. Among the cheapest stocks in the U.S. market are Dow components, which offer clean balance sheets, powerful brands and emerging-markets exposure.

We are going to do a countdown of the bottom 20 and the top 10 Dow dividend stocks and compare them with a dividend ETF portfolio.

The bottom 10 according to this report are:

  • Travelers (TRV), Aggregate Rating: 3.58/5
  • Verizon (VZ), Aggregate Rating: 3.73/5
  • Exxon Mobil (XOM), Aggregate Rating: 3.74/5
  • Caterpillar (CAT), Aggregate Rating: 3.79/5
  • Alcoa (AA), Aggregate Rating: 3.82/5
  • Disney (DIS), Aggregate Rating: 4.06/5
  • Home Depot (HD), Aggregate Rating: 4.07/5
  • J&J (JNJ), Aggregate Rating: 4.08/5
  • GE (GE), Aggregate Rating: 4.10/5
  • 3M (MMM), Aggregate Rating: 4.11/5

We entered these funds into our system and then compared them with a balanced portfolio of dividend-producing ETFs.

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 [DV (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)
Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Street's Bottom 10 Dividend Stocks 35% 212% 4% 14% 5% 16%
Retirement Income ETFs Strategic Asset Allocation Moderate 19% 186% 3% 16% 5% 25%
Retirement Income ETFs Tactical Asset Allocation Moderate 12% 123% 10% 76% 11% 75%
Three Month Chart
[Click all to enlarge]
Five Year Chart The more detailed analysis and graphs show the volatility of the stock portfolio, which has performed well in the short term but not in the longer term. We can see that the one year returns are good but the three month and five year returns are poor with low Sharpe ratios.
There are some household names that are struggling and if you own any of these stocks and are looking for long term returns, it might be worth considering upgrading to some others that are higher in the list that we will review later.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.