Dividend Stocks Vs. Dividend ETFs: Portfolio Performance Comparison

by: MyPlanIQ

Ilan Moscovitz reviews the current bind we are in - consumer spending driven by a market where there is debt and unemployment - doesn't make for a sunny outlook. With that backdrop, what should investors do to protect and grow their portfolios?

Here are Ilan's 10 top opportunities.

  • Utilities and utility-like stocks are popular in slow-growth periods because they provide essential products and services. Southern Company (NYSE: SO) and Waste Management (NYSE: WM) produce stable earnings that are relatively sheltered from economic conditions, and they pay dividends of 4.8% and 4.4%, respectively.
  • The increase in the spread between short- and long-term interest rates is a boon to mortgage REITs such as Annaly Capital (NYSE: NLY) and Annaly-managed Chimera (NYSE: CIM) and Crexus, (NYSE: CXS) which make money on the difference.
  • Income inequality has been growing -- 5% take home 40% of the national income and own 60% of national wealth. New kid on the block Pebblebrook Hotel Trust (NYSE: PEB) , buys luxury hotels at fire-sale prices. Luxury handbag maker Coach (NYSE: COH) continues to do well.
  • Companies that earn a large percentage from outside of the U.S. and Europe provide added protection against the economic slowdown in those regions: Intel (Nasdaq: INTC), British Alcohol and Tobacco a proxy for Philip Morris (NYSE: PM) and good old Coca-Cola (NYSE: KO).

If nothing else, this is a diversified set of companies with interests both domestically and internationally. It will be interesting to see how well this group performs.

The purpose of this article is to swallow that premise but then measure the returns against a benchmark set of dividend ETFs which are more steady. The comparison set is:

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 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)
Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Retirement Income ETFs Tactical Asset Allocation Moderate 7% 81% 10% 88% 10% 71%
Retirement Income ETFs Strategic Asset Allocation Moderate 7% 67% 4% 17% 3% 16%
10 Outstanding Dividend Stocks to Buy in This Crazy Market -1% -5%

We only have a short history on this portfolio because of PEB but the short term results aren't very encouraging.
Click charts to enlarge
Three Month Chart One Year Chart Three Year Chart Five Year Chart
I like the theory of picking strong companies in enduring markets, or international players, or those in the super high end of consumer -- but it isn't playing out in the returns with a pretty steep drop of late. That is one of the problems of picking stocks, you might have the right theory and pick the wrong company or vice versa. We will track this to see how it does on the other side of the turbulence.

For now, I'm sticking with the diversified set of ETFs.

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.

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