My Combined Portfolio Performance Vs. The Two 30-Year Proposed Portfolios

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Includes: AAPL, ABBV, ATVI, BTI, CPB, CSCO, CVS, CVX, DF, DG, DIS, DUK, GD, GIS, GM, HD, IBM, INTC, JNJ, K, KHC, KIM, KMB, KO, LMT, LOW, MA, MCD, MMM, MO, NKE, NNN, NVDA, O, PG, PM, PSA, QCOM, SKT, SO, SPG, SPY, STOR, T, TAP, TGT, TSN, UVV, V, VTR, VZ, WFC, WMT, XOM
by: Kent Candee

Summary

Backtesting the returns of the Top 40 Dividend Stocks for 2017.

Over a 10 and 20-year backward look six stocks removed from BDI’s portfolio and 3 from CWMF’s portfolio.

My combined portfolio had lackluster performance for the first few years and then becomes the stellar performer at the 20-year (19.5 years) mark.

Hindsight is no predictor of future performance.

The recent article, "Top 40 Dividend Stocks for 2017", by Big Dog Investments (BDI) and Colorado Wealth Management Fund (CWMF) was a challenge between two individuals to create a portfolio of dividend stocks that would be around for the next 30 years. Both individuals provided a short justification for their selections within the article and then in the comments. I commend them for their efforts and it has provided me and the Seeking Alpha community some ideas on possible selection of dividend-paying stocks that could be added to an individual's own portfolio.

After reading through the article, I got to thinking about my own combined portfolio (I discuss combining my two portfolios in my article here). How would my portfolio compare to BDI's and CWMF's over some given time period? How about 10 years and 20 years?

There were actually 44 stocks presented between the two. My combined portfolio currently has 21 stocks with all but one Berkshire Hathaway (BRK.B) paying a dividend. Out of the proposed 44 stocks, my combined portfolio has 11 [Apple (AAPL), Chevron (CVX), International Business Machines (IBM), Johnson & Johnson (JNJ), Coca-Cola (KO), Procter & Gamble (PG), Simon Property Group (SPG), AT&T (T), Target (TGT), Wal-Mart (WMT), and Exxon Mobil (XOM)] of the same stocks.

The portfoliovisualizer was used to analyze the performance of the three portfolios. I was introduced to the portfoliovisualizer by Winning Formula in his comments regarding my ETF article. The visualizer is a tool to backtest the asset allocation of your portfolio over some chosen time period. My initial time frame was from 2010 to 2017 since most of the stocks in my portfolio were added after 2009. I elected not to rebalance the portfolio nor reinvest dividends. I also selected an initial portfolio value of $22,000 and selected the Vanguard 500 Index Fund as a benchmark.

Source: PortfolioVisualizer

The $22,000 dollar amount was chosen simply based on the strategy of investing $1,000 in each of the 22 stocks identified in the two portfolios and using an equal weighting between each stock. I used the actual weightings of my combined portfolio.

Portfolio 1: Big Dog Investments

(NYSE:PM)

4.55%

Philip Morris International, Inc.

(NYSE:PG)

4.55%

Procter & Gamble Company

(NYSE:KO)

4.55%

Coca-Cola Company

(NYSE:WMT)

4.55%

Wal-Mart Stores, Inc.

(NYSE:O)

4.55%

Realty Income Corporation

(NYSE:JNJ)

4.55%

Johnson & Johnson

(NYSE:HD)

4.55%

Home Depot, Inc. (The)

(NYSE:IBM)

4.55%

International Business Machines

(NYSE:T)

4.55%

AT&T Inc.

(NYSE:AAPL)

4.55%

Apple Inc.

(NYSE:ABBV)

4.55%

AbbVie Inc.

(NYSE:V)

4.55%

Visa Inc.

(NYSE:MMM)

4.55%

3M Company

(NYSE:GM)

4.55%

General Motors Company

(NYSE:KHC)

4.55%

The Kraft Heinz Company

(NYSE:DG)

4.55%

Dollar General Corporation

(NYSE:CSCO)

4.55%

Cisco Systems, Inc.

(NYSE:CVS)

4.55%

CVS Health Corporation

(NYSE:NKE)

4.55%

Nike, Inc.

(NYSE:DIS)

4.55%

Walt Disney Company

(NASDAQ:ATVI)

4.55%

Activision Blizzard, Inc.

(NYSE:LOW)

4.55%

Lowe's Companies, Inc.

Portfolio 2: Colorado Wealth Management Fund

(NYSE:MO)

4.55%

Altria Group, Inc.

(NYSE:BTI)

4.55%

British American Tobacco

(NYSE:TGT)

4.55%

Target Corporation

(NYSE:NNN)

4.55%

National Retail Properties

(NYSE:STOR)

4.55%

STORE Capital Corporation

(NYSE:SKT)

4.55%

Tanger Factory Outlet Centers

(NYSE:TAP)

4.55%

Molson Coors Brewing

(NYSE:VZ)

4.55%

Verizon Communications Inc.

(NYSE:XOM)

4.55%

Exxon Mobil Corporation

(NYSE:CVX)

4.55%

Chevron Corporation

(NYSE:GD)

4.55%

General Dynamics Corporation

(NYSE:MA)

4.55%

MasterCard Incorporated

(NYSE:LMT)

4.55%

Lockheed Martin Corporation

(NYSE:TSN)

4.55%

Tyson Foods, Inc.

(NYSE:GIS)

4.55%

General Mills, Inc.

(NYSE:K)

4.55%

Kellogg Company

(NYSE:DF)

4.55%

Dean Foods Company

(NYSE:KMB)

4.55%

Kimberly-Clark Corporation

(NYSE:CPB)

4.55%

Campbell Soup Company

(NYSE:UVV)

4.55%

Universal Corporation

(NASDA:NVDA)

4.55%

NVIDIA Corporation

(NYSE:SPG)

4.55%

Simon Property Group, Inc.

Portfolio 3: Combined Portfolio

(NASDAQ:AAPL)

10.99%

Apple

(NYSE:BRK.B)

17.04%

Berkshire Hathaway

(NYSE:CVX)

3.65%

Chevron

(NASDAQ:INTC)

3.62%

Intel

(NYSE:JNJ)

6.85%

Johnson & Johnson

(NYSE:KO)

4.79%

Coca Cola Co

(NYSE:MCD)

12.35%

McDonald's

(NYSE:PG)

4.74%

Procter & Gamble

(NYSE:QCOM)

2.67%

Qualcom

(NYSE:T)

4.29%

AT&T

(NYSE:TGT)

2.76%

Target

(NYSE:VTR)

3.15%

Ventas

(NYSE:WFC)

1.19%

Wells Fargo Co

(NYSE:WMT)

1.57%

Wal-Mart

(NYSE:XOM)

4.13%

Exxon Mobil

(NYSE:DUK)

1.08%

Duke Energy

(NYSE:IBM)

1.43%

International Business Machines

(NYSE:KIM)

1.43%

Kimco Realty Corporation

(NYSE:PSA)

1.19%

Public Storage

(NYSE:SO)

1.31%

Southern Company

(NYSE:SPG)

1.47%

Simon Property Group

(NYSE:T)

1.48%

AT&T

(NYSE:WFC)

1.14%

Wells Fargo Co

The backtest portfoliovisualizer alerted that the data would be adjusted since Kraft Heinz Company (KHC) only existed since August 2015. The portfolio adjusted the test period to January 2016 to June 2017.

Portfolio Returns for 01/2016-06/2017

Source: PortfolioVisualizer

The results for the past 1.5 years provide some comfort with my combined portfolio as it has the 3rd highest return, the lowest standard deviation, the lowest maximum drawdown and a US Market correlation of 0.74. Between CWMF and BDI the winning portfolio would be CWMF.

KHC was removed from the BDI portfolio and adjusted the weighting for 21 stocks to 4.76%. After running the analyzer the backtest portfoliovisualizer it alerted that STOR only had data from December 2014 to July 2017. The portfolio adjusted the test period to January 2015 to June 2017.

Portfolio Returns for 01/2015-06/2017

The results for the past 2.5 years provided little comfort for my combined portfolio as it was the worst performing between the other three portfolios. CWMF is still the winner over BDI.

Removing STOR and adjusting the weightings resulted in ABBV only having data available for February 2013 to July 2017 and used data from January 2014 to June 2017. ABBV was removed and the stock weightings were adjusted for 20 stocks in BDI portfolio. Reanalyzing the portfolios identified GM with data only available since December 2010 and the data was adjusted for the period of January 2011 to June 2017 for a period of 6.5 years.

Portfolio Returns for 01/2011-06/2017

Once again my combined portfolio is bringing up the rear in comparison having the lowest return and the worst year performance. The return is still decent, but lagged the Vanguard 500 Index Fund telling me I should have invested in the SPDR S&P 500 ETF Trust (SPY).

GM was removed from BDI's portfolio and the weightings adjusted to 5.26% for the remaining 19 stocks. The backtest portfoliovisualizer then identified DG as only having data available from December 2009 to July 2017 and the analyzer used January 2010 to July 2017 for 6.5 years.

Portfolio Returns for 01/2010-06/2017

BDI's portfolio with only 18 stocks outperformed all of the portfolios and by almost 200 points over CWMF's portfolio. My combined portfolio performed at least better than the Vanguard 500 Index Fund and had the least standard deviation and maximum drawdown, but the worst performing year with a negative return.

Once again after reanalyzing the portfolios and removing DG from BDI's portfolio another two holdings appear, PM and V. The data was adjusted to January 2009 to July 2017 since both stocks only had data going back to April 2008.

Portfolio Returns for 01/2009-06/2017

Even with only 17 stocks (PM was removed) in the portfolio BDI continues to blow the competition away with high returns, low standard deviation, and the lowest maximum drawdown. The Vanguard 500 Index Fund continues to be the lagger with my combined portfolio in third place for returns and last place on the worst year return.

Removing both PM and V from BDI's portfolio leaves him with 16 stocks to CWMF's and my combined portfolios with 21 stocks each. Another run of the analyzer and we finally are able to produce results for a 10.5 year period, which includes the 2007/8 financial crisis market drop.

Portfolio Returns for 01/2007-06/2017

Source: hdimagelib.com

The tide has definitely changed after including the financial crisis in the data backtest. My combined portfolio jumps back into the lead after multiple periods of being the worst or 3rd best performer as far as return is considered. It does have the second highest standard deviation at 14.25%. BDI's portfolio of only 16 stocks is not far behind in return and has a lower standard deviation. This is not surprising as seven of our stocks (PG, KO, WMT, JNJ, IBM, T, and AAPL) are the same with the exception of my weightings not being equal.

Looking the data for the Vanguard 500 Index Fund, it is clear that having a diversified dividend growth stock portfolio through the financial crisis would have exhibited less drawdown and preserved a greater portion of your capital. This has been proven many times over since the crisis by the SA community and so this is just one more example.

I also wanted to look back 20 years with backtesting for my combined portfolio performance. Using January 1997 as the start date MA, NVDA, and VTR were lacking data back that far. VTR had data available back to June 1997 and since I have it in my portfolio I decided to not go back beyond January 1998 as a start date.

After removing MA and NVDA from CWMF's portfolio he was left with 19 stocks and an equal weighting of 5.26%. Analyzing the portfolios one last time with the January 1998 start date and ending July 2017 for a total period of 19.5 years produces the following portfolio returns:

Portfolio Returns for 01/1998-06/2017

Source: www.clipartpanda.com/clipart_images/surprise-60976206

My combined portfolio outperforms in the return falling just short of $1M. A 19.5 year return grows $22,000 into $960,577 for CAGR of 21.27%. Very impressive and wish it was real for me.

As impressive as the return is it does come with hefty statistics like having the highest standard deviation of 25.41%, the worst return year of -47.01%, and the greatest drawdown of -57.40%. The Vanguard 500 Index Fund fared better in standard deviation at 15.02%, worst return year of -37.02%, and -52.40% for drawdown maximum. My combined portfolio numbers in these three metrics are somewhat surprising as it only has a ⅔ correlation to the US Market.

The holdings and weightings in each of the portfolios are listed in the following table:

Final Portfolio Holdings and Stock Weightings

Symbol

Combined Portfolio

BDI

CWMF

Stock Name

AAPL

10.99%

6.25%

Apple

BRK.B

17.04%

Berkshire Hathaway

CVX

3.65%

5.26%

Chevron

INTC

3.62%

Intel

JNJ

6.85%

6.25%

Johnson & Johnson

KO

4.79%

6.25%

Coca Cola Co

MCD

12.35%

McDonald's

PG

4.74%

6.25%

Procter & Gamble

QCOM

2.67%

Qualcom

T

4.29%

6.25%

AT&T

TGT

2.76%

5.26%

Target

VTR

3.15%

Ventas

WFC

1.19%

Wells Fargo Co

WMT

1.57%

6.25%

Wal-Mart

XOM

4.13%

5.26%

Exxon Mobil

DUK

1.08%

Duke Energy

IBM

1.43%

6.25%

International Business Machines

KIM

1.43%

Kimco Realty Corporation

PSA

1.19%

Public Storage

SO

1.31%

Southern Company

SPG

1.47%

5.26%

Simon Property Group

T

1.48%

AT&T

WFC

1.14%

Wells Fargo Co

O

6.25%

Realty Income Corporation

HD

6.25%

Home Depot, Inc. (The)

MMM

6.25%

3M Company

CSCO

6.25%

Cisco Systems, Inc.

CVS

6.25%

CVS Health Corporation

NKE

6.25%

Nike, Inc.

DIS

6.25%

Walt Disney Company

ATVI

6.25%

Activision Blizzard, Inc.

LOW

6.25%

Lowe's Companies, Inc.

MO

5.26%

Altria Group, Inc.

BTI

5.26%

British American Tobacco

NNN

5.26%

National Retail Properties

SKT

5.26%

Tanger Factory Outlet Centers

TAP

5.26%

Molson Coors Brewing

VZ

5.26%

Verizon Communications Inc.

GD

5.26%

General Dynamics Corporation

LMT

5.26%

Lockheed Martin Corporation

TSN

5.26%

Tyson Foods, Inc.

GIS

5.26%

General Mills, Inc.

K

5.26%

Kellogg Company

DF

5.26%

Dean Foods Company

KMB

5.26%

Kimberly-Clark Corporation

CPB

5.26%

Campbell Soup Company

UVV

5.26%

Universal Corporation

SPG

5.26%

Simon Property Group, Inc.

BDI and CWMF asked SA Community readers to select the winning portfolio and based on the backtesting of the two portfolios it is clear that BDI had the edge for returns over the long and short term. The results of backtesting of portfolios should in no way be thought of as an indicator for future performance.

As for my combined portfolio, backtesting at least suggests that I have reasonable diversification with good potential for total return over a 10 year and 20 year period. Although it has poor metrics regarding standard deviation, worst performing year, and maximum drawdown.

Feel free to comment and I will do my best to respond. Thanks for reading and it will be interesting to see the performance over the next few years for the 'Top 40 Dividend Stocks for 2017.'

Disclosure: I am/we are long ALL STOCKS IN COMBINED PORTFOLIO.

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.