Long-Term Stock Portfolio Playoffs: Do Dividend Hogs Make for Good Portfolios?

by: MyPlanIQ

We have recently reviewed a number of stock portfolios to create a set of references for comparison. There are several approaches to long term investing and it is our goal to provide quantitative insight into the different types of portfolios. In this article, we are going to start comparing the performance of a set of long term buy and hold stocks with a reference ETF portfolio.

We have reviewed the first set and saw the following results:

Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Retirement Income ETFs Tactical Asset Allocation Risk Profile 0 20% 158% 17% 91% 15% 77%
P 10 Dividend Stocks From SeekingAlpha Readers 27% 277% 10% 47% 11% 54%
P 5 Stocks for the Next Three Decades 14% 133% 5% 21% 7% 32%
Retirement Income ETFs Strategic Asset Allocation Risk Profile 0 20% 180% 8% 23% 6% 20%
P The Street`s 10 Dividend Stocks 26% 136% 6% 14% 3% 7%

From this list, we keep only 10 Dividend Stocks From Seeking Alpha Readers as the returns and Sharpe ratios of the others simply don't warrant them making it through to the next round. We will continue to track them to see if the performance improves.

There is an important question as to how many stocks you should own to provide stability. The number from reader comments seems to be between 15 and 40. The ETF portfolio is highly diversified and uses the market index so this clearly passes that threshold. The reason for reviewing other stock portfolios is to provide insight for people to configure their own combination which they can track and test.

The next three we look at have a slightly different slant. The selection was made based on those companies that are boosting their dividends. In turbulent times, having a company that will continue to provide dividends and even increase them, shows good fiscal management and a commitment to the shareholder.

Jonas Elmerraji Stockpickr selected five stocks that are increasing their dividends:

Street 5 Dividend Stocks Rewarding Shareholders

  • Exxon Mobil Corp (NYSE:XOM) -- increased its dividend 7% to 47 cents per share
  • Kimberly Clark (NYSE:KMB) -- announced a 6.1% dividend hike raising its quarterly payout to 70 cents per share
  • PPG Inds (NYSE:PPG) -- 3.6% dividend hike evidence of strong execution in a high cost market
  • Aetna Inc (NYSE:AET) -- 15-cent quarterly dividend compared to its 4-cent annual dividend in 2010.
  • Wells Fargo (NYSE:WFC)-- jumped its previously-meager payout by 140% -- indicating returning to health

Four weeks ago, he suggested five more stocks.

  • CSX Corp (NYSE:CSX) -- announced a 38.5% dividend increase
  • Harley Davidson (NYSE:HOG) -- announced a 25% dividend increase
  • PepsiCo Inc (NYSE:PEP) -- announced a 7.3% dividend increase
  • Legg Mason Inc (NYSE:LM) -- announced a 33.3% dividend hike
  • Marriott International, Inc. (NYSE:MAR) -- announced a 14.3% increase in dividends

Finally, the Fool suggested seven stocks that are offering high dividends:





TJX 1.5% 20% 27%
Ross Stores (NASDAQ:ROST) 1.2% 26% 38%
Wal-Mart (NYSE:WMT) 2.8% 15% 21%
Hasbro (NASDAQ:HAS) 2.6% 22% 20%
Qualcomm (NASDAQ:QCOM) 1.4% 17% 13%

Source: Capital IQ, a division of Standard & Poor's.

All of these are high quality stocks and there is no overlap between the portfolios. All of these selections are likely to provide stable portfolios for the long term investor. We contrast this with an ETF portfolio that doesn't select a company but selects asset classes.

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 [[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

This dividend bearing portfolio has US, international and emerging market equities as well as real estate. Note that while there is a fixed income portion, to make a fairer comparison, we will exclude them for this comparison although we would recommend at least 20% of the portfolio be dedicated to fixed income assets.

Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Retirement Income ETFs Tactical Asset Allocation Risk Profile 0 20% 127% 17% 88% 16% 76%
Retirement Income ETFs Strategic Asset Allocation Risk Profile 0 20% 141% 9% 26% 7% 20%
5 Dividend Stocks Rewarding Shareholders 29% 214% 9% 26% 5% 17%
Next 5 Dividend Stocks Rewarding Shareholders 36% 233% 9% 22% 6% 16%
P The Fools You Should Own These 7 Dividend Triplers 24% 217%

This list is sorted in descending order of the 5 year Sharpe ratio -- i.e. what has given the best risk adjusted returns over a five year horizon. We have been seeing big annual leaps in portfolio values through the recent bull market but the question is whither now in these more challenging times. This is where a strategy, not just a selection is important.

It appears that increasing dividends is not a good selection criteria as the long term returns are all below the ETF portfolios. You may select these stocks because you want short term income. You select these stocks because you like the short term performance. If you are looking for the long term, you can do better than this selection.

A long term portfolio with a strategy that is understood and followed is the best way to go about long term investing. There isn't only one way and you can see the range of returns from selecting a long term set of companies or a strategy based on market indices with ETF's.

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.

Additional Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.