Dividends And Buybacks: 2017 Review And 2018 Picks

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Includes: AIZ, AMP, AXS, MSM, PKW, VIG
by: Brad Kenagy

Summary

I review my 2017 stock picks for my dividend and buyback strategy.

My strategy had a good year by outperforming the overall market, a buyback ETF, and only slightly underperforming a dividend growth ETF.

For my 2018 stock picks, I found four companies 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 common holdings of a dividend growth ETF and a buyback ETF. I also provide my new selections for 2018.

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'm able to find stocks that are growing their dividend and repurchasing large amounts of shares. 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."

2017 Performance

Using the dividendchannel.com DRIP calculator, I calculated the total return for all the picks from 2017, 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 2017 Selections

Total Return

Assurant Inc

(AIZ)

9.49%

McDonald's Corp

(MCD)

47.57%

Ameriprise Financial Inc

(AMP)

55.09%

Lincoln Electric Holdings Inc

(LECO)

19.43%

Axis Capital Holdings Ltd

(AXS)

-21.14%

WW Grainger Inc

(GWW)

3.39%

Travelers Cos Inc/The

(TRV)

14.79%

Nordson Corp

(NDSN)

30.25%

Lindsay Corp

(LNN)

18.55%

Lowe's Cos Inc

(LOW)

33.57%

My 2017 Selections

21.10%

SPY

20.78%

VIG

21.81%

PKW

17.10%

VIG/PKW Avg

19.46%


Observations and Historical Performance

The above table shows that my strategy of combining dividends and buybacks slightly outperformed the S&P 500, PKW, an average of VIG and PKW, and only slightly underperformed VIG. The drag on my selections was clearly Axis Capital, which ran into trouble from Mother Nature. Axis capital provides insurance and reinsurance products and thus was hit hard by the multiple hurricanes. Overall, I was very pleased with the selections since as a group despite this large loss from Axis Capital, they were able to outperform.

The table below shows the historical performance of this article series over the last six years since I started it. For the last six years my strategy has averaged a 16.66% total return per year, which is higher than the S&P 500 and the other ETFs that I used to build my selections from.


2017

2016

2015

2014

2013

2012

Average

My Picks

21.10%

10.76%

11.29%

7.37%

34.00%

15.43%

16.66%

SPY

20.78%

12.00%

1.25%

13.46%

32.31%

8.27%

14.68%

VIG

21.81%

11.97%

-1.95%

9.46%

28.87%

6.91%

12.85%

PKW

17.10%

12.88%

-4.34%

12.74%

45.57%

7.05%

15.17%

VIG/PKW

19.46%

12.43%

-3.15%

11.10%

37.22%

6.98%

14.01%


My 2018 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 entered the holdings of each into a spreadsheet. I then combined the holdings and I found that 11 companies were included in both the VIG and PKW. I then took those 11 common holdings of VIG and PKW and compiled share count data comparing the shares outstanding at this time last year to 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. Out of those 11 companies four have decreased their share count by at least 5% over the last year and thus are my semi-final candidates.

Shares Outstanding Test


Shares Last Year

Current Shares Out

% Change

5% Share Reduction?

Assurant Inc

(AIZ)

60.8

54.5

-10.36%

YES

Axis Capital Holdings Ltd

(AXS)

90.4

83.3

-7.85%

YES

Ameriprise Financial Inc.

(AMP)

165.8

155.4

-6.27%

YES

MSC Industrial DirecT

(MSM)

60.2

56.8

-5.65%

YES

WW Grainger Inc

(GWW)

60.4

57.5

-4.80%

NO

Best Buy Co Inc

(BBY)

320

305.4

-4.56%

NO

United Technologies Corp

(UTX)

831.2

797.1

-4.10%

NO

Franklin Resources Inc

(BEN)

571.5

554

-3.06%

NO

RenaissanceRe Holdings Ltd

(RNR)

40.7

39.6

-2.70%

NO

Lincoln Electric Holdings

(LECO)

67.2

66.7

-0.74%

NO

Bob Evans Farms Inc./DE

(BOBE)

20

20.2

1.00%

NO


(Table data from Gurufocus)

Dividend Test

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

2018 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 dividends and buybacks strategy selections for 2018.


Assurant Inc

AIZ

Axis Capital Holdings Ltd

AXS

Ameriprise Financial Inc.

AMP

MSC Industrial Direct

MSM


Closing Thoughts

Out of my four selections, three were on my list last year and the only new addition is MSC Industrial Direct, which I actually covered back in November 2016 as one of my T.R.U.M.P stocks. Axis Capital once again was on my list, and even with the hurricane impact the company recently increased the dividend. The dividend increase was only $0.01/qtr compared to an increased of $0.03/qtr from 2016 to 2017, so it appears the company is being conservative given the hurricane impact. Last year financial related companies made up the largest sector group of my selections as was the case for my 2018 selections with three out of four being financial companies. I also want to take note of what was not included in my selections for 2018. As I noted last year, Lowe’s (LOW) was one of my selections every year of this series and I was surprised to see that it was not included this year. Lowe’s was included in VIG but not in PKW and the likely cause of its exclusion is Lowe’s “only” repurchased 4.81% of their shares over the past year.

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.