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DC-Realtime DGI Portfolio Update

Summary

A realtime DGI model portfolio is being created to periodically track against the S&P 500 benchmark index fund.

DC-Realtime portfolio is based upon quality and historical total return and growth.

This portfolio was created at a snapshot in time in order to determine if DGI theory can work regardless of original valuations of the components.

Well hello there, SeekingAlpha Denizens. . . time flies! It seems like just yesterday I was debating whether or not a DGI portfolio could “beat the market” for the long-term. . . .

Oh wait, I was!

Was it a dream, after all? . . .

“To Dream the impossible dream to Fight the unbeatable foe. To bear with unbearable sorrow, to run where the Brave dare not go!”

Well, the challenge has been repeatedly proffered, and the gauntlet laid down. The results shall speak for themselves over time. Only the brave or the foolish would subject themselves to real comparison. So with that, I offer you. . .

Background on the DC-Realtime Portfolio Experiment

The original blog post for the DC-Realtime Portfolio experiment came up from debate with others on Seeking Alpha whether or not it could be possible for an amateur investor using proper diversified portfolio construction could outperform the market long-term utilizing a DGI philosophy. The original Blog Post can be found here: DC-Realtime DGI Portfolio - Daniel Cluley

The exact conversation that led to the experiment can be found here on David Van Knapp's article "What are the Highest Quality Dividend Growth Stocks?"

The portfolio was constructed with a focus on risk-adjusted returns, taking into account diversification and overall volatility and beta and based upon my simple DGI model of:  

Quality + Ongoing Business Profitability Growth + Dividend Yield + Dividend Growth = Success.

I am of the opinion that a properly constructed DGI portfolio consisting of properly diverse companies that have been screened for quality, historical dividend growth, and total return can outperform an index as a whole and provide alpha over the long term, no matter what the starting valuation. (although returns would be maximized when purchased at value). Furthermore, if constructed properly, a DGI portfolio can add in the extra benefit of higher yield, lower volatility, and significantly less severe drawdowns, and you can achieve even greater benefits than just simple ALPHA. You also achieve peace of mind and the ability to stick to your strategy when times are the worst, because your portfolio has been proven to weather the most difficult storms.

Keep in mind that this portfolio was picked in realtime, off the cuff, without regard to current valuations at the inception date. The idea was that if properly constructed, the starting valuation would not matter over the long term as the portfolio works its magic.

On to the Report and the Numbers

I am happy to report that despite all reasonable odds, simple me, tapping away in an obscure corner of the internet, without really trying to buy in at good values, happened to “beat the market” since inception.

I will preface my results with the caveat that this has been just a short period of time, and the true test is whether the portfolio can outperform long-term. It was set up with a 10 year time horizon to follow over the years. Hopefully, these initial results will translate over a longer period. 

I am using several tools to track updates for the DC-Realtime portfolio. First, I set up the portfolio with an inception date of 3-15-2018, the date of my original conversation that led to me choosing this portfolio. I have set up a spreadsheet with the original inception date price and am using the DividendChannel DRIP Returns Calculator with the assumption that all dividends are reinvested back into each individual stock. 

I also will be using the Portfolio Visualizer Tool with an equal-weight starting in March 2018 and tracking month to month vs. SPY. This tool offers some robust risk management stats that make for interesting ways to compare, but the real tracking will be done from the actual inception date and entered into the master spreadsheet. Results of the master spreadsheet are as follows as of 11-5-2018. The result since inception as an annualized total return of 6.01%, which compares favorably to the annualized total return of SPY over the same time period of 1.15%:

Ticker Original Value Starting Price/share Starting Shares Original Dividend/ Year/Share Current Value Ending Price/Share Ending Shares TR Since 3-15-2018 Current Price Current Dividend/ Year Current Yield Fractional Yield Current Beta Fractional Beta
AAPL $10,000 $178.65 55.98 $2.52 $11,368 $201.59 56.39 13.68% $203.77 $2.92 1.43% 0.0005229769672 1.31 0.04780917525
ACN $10,000 $162.86 61.40 $1.33 $9,916 $158.60 62.52 -0.84% $159.42 $2.92 1.83% 0.0005830857878 1.01 0.03215242865
ADP $10,000 $116.48 85.85 $2.52 $12,260 $141.41 86.70 22.60% $143.92 $2.76 1.92% 0.0007548041741 0.91 0.03581688016
AMGN $10,000 $189.75 52.70 $5.28 $10,153 $189.92 53.46 1.53% $190.75 $5.28 2.77% 0.0009022349644 1.37 0.04465507721
BDX $10,000 $224.15 44.61 $3.00 $10,653 $237.32 44.89 6.53% $240.69 $3.00 1.25% 0.0004262761415 1.19 0.04069816045
BLK $10,000 $557.93 17.92 $11.52 $7,454 $411.00 18.14 -25.46% $413.43 $12.52 3.03% 0.0007246822451 1.54 0.03685241902
CB $10,000 $141.06 70.89 $2.84 $9,264 $128.59 72.05 -7.36% $130.39 $2.92 2.24% 0.0006660287919 1.02 0.03033574112
CLX $10,000 $127.14 78.65 $3.36 $12,616 $156.96 80.38 26.16% $158.10 $3.84 2.43% 0.000983732288 0.28 0.01134058878
DIS $10,000 $103.24 96.86 $1.68 $11,272 $115.45 97.64 12.72% $116.71 $1.68 1.44% 0.0005209044698 1.17 0.04233920832
DUK $10,000 $76.74 130.31 $3.56 $11,147 $83.58 133.37 11.47% $84.33 $3.71 4.40% 0.001574365998 -0.06 -0.002147163633
HD $10,000 $178.07 56.16 $4.12 $10,340 $182.19 56.76 3.40% $182.01 $4.12 2.26% 0.0007514124671 1.26 0.04182606183
JNJ $10,000 $133.06 75.15 $3.36 $10,838 $142.20 76.22 8.38% $142.57 $3.60 2.53% 0.0008785761084 0.58 0.02018055154
LMT $10,000 $333.23 30.01 $8.00 $9,214 $303.21 30.39 -7.86% $306.56 $8.80 2.87% 0.0008491243281 0.89 0.02632655944
MKC $10,000 $108.97 91.77 $2.08 $13,655 $146.85 92.98 36.55% $148.50 $2.08 1.40% 0.0006140227708 0.34 0.01490481235
MMM $10,000 $235.87 42.40 $4.72 $8,304 $193.25 42.97 -16.96% $195.30 $5.44 2.79% 0.000742574255 1.18 0.03145757488
MSFT $10,000 $94.18 106.18 $1.68 $11,509 $107.51 107.05 15.09% $107.72 $1.84 1.71% 0.0006311243837 1.26 0.04655475296
NEE $10,000 $158.14 63.24 $4.44 $10,940 $170.71 64.09 9.40% $171.46 $4.44 2.59% 0.0009094804416 0.13 0.004565796655
NKE $10,000 $66.39 150.63 $0.80 $11,739 $77.53 151.41 17.39% $76.57 $0.80 1.04% 0.0003937479755 0.77 0.02901868439
O $10,000 $51.14 195.54 $2.64 $12,411 $61.47 201.90 24.11 $61.56 $2.65 4.30% 0.001712591939 -0.01 -0.0003984397573
OZK $10,000 $51.51 194.14 $0.76 $5,401 $27.42 196.97 -45.99% $27.34 $0.84 3.07% 0.0005327345266 1.50 0.02600886064
RTN $10,000 $208.58 47.94 $3.20 $8,888 $183.06 48.55 -11.12% $184.80 $3.47 1.88% 0.0005357811685 0.84 0.0239684099
SHW $10,000 $410.27 24.37 $1.72 $9,892 $404.12 24.48 -1.08% $405.07 $1.72 0.42% 0.0001348460924 1.34 0.04255443192
SYK $10,000 $166.45 60.08 $1.88 $10,077 $166.33 60.59 0.77% $166.73 $1.88 1.13% 0.0003647801931 0.64 0.02070461331
T $10,000 $37.04 269.98 $2.00 $8,645 $30.63 282.23 -13.55% $30.96 $2.00 6.46% 0.001792874674 0.42 0.01165655398
TRV $10,000 $140.47 71.19 $2.88 $9,115 $126.53 72.04 -8.85% $128.60 $3.08 2.40% 0.0007008455371 1.19 0.03482246621
TXN $10,000 $109.71 91.15 $2.48 $8,893 $95.66 92.97 -11.07% $97.14 $3.08 3.17% 0.0009052255448 1.27 0.03625833895
UNH $10,000 $229.48 43.58 $3.00 $11,452 $261.01 43.88 14.52% $263.54 $3.60 1.37% 0.0005022190588 0.77 0.02830922341
UNP $10,000 $136.26 73.39 $2.92 $11,016 $148.57 74.15 10.16% $150.17 $3.20 2.13% 0.0007536099365 0.95 0.03359722624
V $10,000 $123.41 81.03 $0.84 $11,363 $139.80 81.28 13.63% $140.79 $1.00 0.71% 0.0002591057728 1.13 0.04122183698
VFC $10,000 $74.72 133.83 $1.84 $11,695 $86.46 135.26 16.95% $85.46 $2.04 2.39% 0.0008962380878 1.02 0.03829625349
Inception Date 3/15/2018 11/5/2018 Aggregate Yield 2.25% Aggregate Beta 0.87
Inception Value $300,000 -$311,490
CAGR = 6.01%

Additional notes are that the current portfolio yield is 2.25%, which is approximately 0.4% higher than SPY at the time of this writing, and the portfolio aggregate Beta is approximately 0.87, which show less volatility than the overall market and suggest better overall risk-adjusted returns. From Portfolio visualizer, we see the following risk-profile metrics:

Portfolio Initial Balance Final Balance CAGR Stdev Max. Drawdown Sharpe Ratio Sortino Ratio US Mkt Correlation
DC-Realtime Portfolio $10,000 $10,360 5.45% 11.44% -6.54% 0.36 0.49 0.98
SPDR S&P 500 ETF $10,000 $10,093 1.40% 12.13% -6.91% 0.03 0.03 0.99

The Sortino ratio of the portfolio is much higher and the implied annualized Alpha at this time is 4.02%. While the market correlation is .98, implying proper diversification to nearly replicate the market as a whole, but without as much downside volatility. Not bad for some amateur DGI guy! 

Note that these are raw numbers based upon just picking the best ideas in a somewhat arbitrary fashion on my watch-list, without regard to their current valuations at the time. I will note also, that there were some big stinkers in there, such as OZK, which fell nearly 50%!  The beauty of this theory is, however, that with proper diversification of quality companies, you can stand to weather a stinker or two over time. And the best part is, if the companies are truly quality, your dividends will be re-invested over time to buy shares at lower prices and probably recover. That's one of the better things about automated DGI.  

I encourage you all to keep following along with me on this journey as I continually update the portfolio results. 

Nobody said it was easy to buy and hold a DGI portfolio that consistently beats the market. But it ABSOLUTELY can be done and it is not as hard as a lot of the people who argue against DGI on Seeking Alpha would suggest. I look forward to seeing if I can prove to do it in DC-Realtime!

Disclosure: I am/we are long MMM, JNJ, T, O, LMT, MSFT, CLX, DUK, V, MKC, VFC, TXN, UNP, ADP, NKE, AMGN, HD, DIS, BLK, CB, RTN, TRV, OZK, BDX, UNH, NEE, AAPL.