Dividends And Buybacks: 2016 Review And 2017 Picks

|
Includes: AIZ, AMP, AXS, GWW, LECO, LNN, LOW, MCD, NDSN, TRV
by: Brad Kenagy

Summary

I review my 2016 stock picks for my dividend and buyback strategy.

My strategy slightly underperformed the overall market and the corresponding dividend-growth and buyback ETFs.

For my 2017 stock picks, I found ten stocks that met my strategic criteria.

This article is my yearly review of the stock picks from my strategy I created to find stocks that are in the holdings of a dividend growth ETF and a buyback ETF. I also provide my new picks for 2017.

My Strategy

I built my screen by finding the common holdings of a dividend ETF and the holdings of a buyback ETF and seeing which companies were in both ETFs. By using these two select ETFs, I am able to find stocks that are growing their dividend and repurchasing large amounts of stock. The two ETFs I used were the Vanguard Dividend Appreciation ETF ( VIG), and the PowerShares Buyback Achievers ( PKW).

VIG Description

From Vanguard's fund description page: "The Vanguard Dividend Appreciation ETF seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time."

PKW Description

From PowerShares fund description page: "The Index is designed to track the performance of companies that meet the requirements to be classified as Buyback Achievers™. To become eligible for inclusion in the Index, a company must be incorporated in the U.S., trade on a U.S. exchange and must have repurchased at least 5% or more of its outstanding shares for the trailing 12 months."

2016 Performance

Using the dividendchannel.com DRIP calculator, I calculated the total return for all the picks from 2016, the returns for the SPDR S&P 500 Trust ETF ( SPY), as well as for the two ETFs I used to screen: VIG and PKW.

My 2016 Selections

% Change

Gap Inc.

(NYSE:GPS)

-4.67%

Illinois Tool Works Inc

(NYSE:ITW)

35.01%

Lindsay Corp

(NYSE:LNN)

4.69%

Lowe's Cos Inc

(NYSE:LOW)

-4.87%

Monsanto Co

(NYSE:MON)

9.22%

Northrop Grumman

(NYSE:NOC)

25.19%

SPY

12.00%

VIG

11.97%

PKW

12.88%

VIG/PKW

12.43%

My 2016 Selections

10.76%

Observations & Historical Performance

The above table shows that my strategy of combining dividends and buybacks slightly underperformed the S&P 500, VIG, and PKW because of a weak performance from two retail stocks: Gap & Lowe's. As I noted in last year's results, many of the companies in PKW have not repurchased at least 5% of their shares outstanding in the last 12 months; therefore, I manually checked the decline in shares outstanding for each company that I considered for my final list. The table below shows the historical performance of this article series over the last five years since I started it. Overall, for the five-year time horizon, I am pleased with the performance of the strategy because even with the slight underperformance this year, my strategy has still outperformed the SPY, VIG, PKW and a 50/50 allocation to VIG/PKW over the last five years.

2016

2015

2014

2013

2012

Average

SPY

12.00%

1.25%

13.46%

32.31%

8.27%

13.46%

VIG

11.97%

-1.95%

9.46%

28.87%

6.91%

11.05%

PKW

12.88%

-4.34%

12.74%

45.57%

7.05%

14.78%

VIG/PKW

12.43%

-3.15%

11.10%

37.22%

6.98%

12.92%

My Picks

10.76%

11.29%

7.37%

34.00%

15.43%

15.77%

My 2017 Process

First, I went to the holdings page for VIG on Vanguard's website, and then I went to the holdings page for PKW on the PowerShares website, and I entered the holdings of each into a spreadsheet. I then combined the holdings and I found that 22 companies were included in both the VIG and PKW. I then took those 22 common holdings of VIG and PKW and compiled share count data comparing the shares outstanding at this time last year with the current shares outstanding. I did this to make sure companies that I include on my final list have repurchased at least 5% of their shares in the last year. I found 10 companies that were included in both VIG and PKW and thus are my semi-final candidates.

Shares Outstanding Test

Shares Last Year

Current Shares Out

% Change

5% Share Reduction?

(NYSE:AIZ)

Assurant Inc

67.6

60.8

-10.06%

Yes

(NYSE:MCD)

McDonald's Corp

934.8

847.7

-9.32%

Yes

(NYSE:AMP)

Ameriprise Financial Inc

182.7

165.8

-9.25%

Yes

(NASDAQ:LECO)

Lincoln Electric Holdings Inc

73.8

67.2

-8.94%

Yes

(NYSE:AXS)

Axis Capital Holdings Ltd

99.1

90.4

-8.78%

Yes

(NYSE:GWW)

WW Grainger Inc

65.3

60.4

-7.50%

Yes

(NYSE:TRV)

Travelers Cos Inc/The

311

289.8

-6.82%

Yes

(NASDAQ:NDSN)

Nordson Corp

61.2

57.5

-6.05%

Yes

Lindsay Corp

11.3

10.7

-5.31%

Yes

Lowe's Cos Inc

921

874

-5.10%

Yes

(NYSE:AFL)

Aflac Inc

431.1

411.1

-4.64%

No

Northrop Grumman Corp

187.9

179.6

-4.42%

No

(NYSE:ADM)

Archer-Daniels-Midland Co

615

589

-4.23%

No

Illinois Tool Works Inc

367.1

355.5

-3.16%

No

(NYSE:LLL)

L-3 Communications Holdings

81.2

78.8

-2.96%

No

(NYSE:GGG)

Graco Inc

58.7

57

-2.90%

No

(NASDAQ:CTAS)

Cintas Corp

110.1

107.6

-2.27%

No

(NYSE:VMI)

Valmont Industries Inc

23.2

22.7

-2.16%

No

(NYSE:PH)

Parker-Hannifin Corp

138.6

135.8

-2.02%

No

(NYSE:SXT)

Sensient Technologies Corp

45.7

44.8

-1.97%

No

(NASDAQ:ATRI)

Atrion Corp

1.9

1.9

0.00%

No

(NYSE:DOV)

Dover Corp

156.6

156.8

0.13%

No

[Table data from Gurufocus]

Dividend Test

Next, I looked at the 10 companies in both VIG and PKW to see if there were any companies in that group that had not increased their dividend in the last year. All 10 companies passed this test as they have all raised their dividend in the last year.

2017 Strategy Picks

Based on my 5% shares outstanding test and my dividend test, I was left with my final list of stocks, which are my 2016 dividends and buybacks strategy selections.

AIZ

Assurant Inc

MCD

McDonald's Corp

AMP

Ameriprise Financial Inc

LECO

Lincoln Electric Holdings Inc

AXS

Axis Capital Holdings Ltd

GWW

WW Grainger Inc

TRV

Travelers Cos Inc/The

NDSN

Nordson Corp

LNN

Lindsay Corp

LOW

Lowe's Cos Inc

Closing Thoughts

This year there were 10 stocks that met my criteria, and I hope they will perform well in 2017. What is interesting about my selections this year is that there are a number of companies in the financial sector included on my final list. In years past, financial companies have been non-existent on my final list; however, this year four companies on my final list are in the financial sector. This year only Lindsay and Lowe's were repeat holdings from my selections from last year. More impressively, though, Lowe's has been on my final list every year, which shows that the company is very shareholder-friendly when it comes to capital returns through dividends and share repurchases. Even though Lowe's had a disappointing 2016, I still expect it to continue repurchasing stock and increasing its dividend, and hopefully the stock price will appreciate as well.

Disclaimer: See here.

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

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.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here