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15 Year History Of One Dividend Stock Portfolio

  • This is a 15 year history of the Dividend Stock Portfolio of David Van Knapp. The longest running portfolio that I am currently aware of managed by an individual for which no money has entered or left the portfolio.
  • I personally do not believe that any advice on stock investing is credible unless it is backed by a bona-fide illustrative real-time portfolio 1
  • … but there are few follow up articles 1
  • As a result, the individual investor is left in the dark on what the advice actually would have accomplished, in real dollars and in real time 1
  • When you are young, you are also inexperienced. You are most likely to make mistakes 2

I will say up front this real-time portfolio journey is not one of an inexperienced investor, but is one that is quite common even for experienced investors. My own experience is not unlike what you will see in this real-time portfolio journey of David Van Knapp, [DVK] one of Seeking Alpha's most respected contributors as is evidenced by his over 15,000 followers. I hope this article does not detract from the many positive articles that DVK has presented to the Seeking Alpha community as that is not the purpose. The purpose is to present the facts of the longer range journey that many investors face which include changes in strategy along the way and doubts that may even creep into your psyche that there may be a better way than what you are currently doing. What I will present is a chronology of events as I have read them in published works by DVK himself, unless I indicate otherwise. In many cases I will use brackets [] to indicate my own commentary.

Phase One - The Opening Gambit

Below is a chart of data developed from the first three references at the end of this article. This will help explain the narrative that follows.

The comments below allow you to see the thinking of the investor (in this case DVK) as they develop. The actual articles can be referenced by clicking on the date referenced.

Nov 2nd 2006: The earliest portfolio archive available. Portfolio 2 is the Dividend Portfolio of interest here.

" Portfolio 2 has risen 60% more than S&P 500 since its inception"

"Current value of portfolio (10/31/06): $52,910 (+32%)"

"Portfolio Number 2 (the "Boring Portfolio") was begun in 2002. In 2003, it was given the specific mission of focusing on stocks with significant dividends."

[as noted in table above the dividend portfolio had outperformed the SPY by only 1.7%]

Feb 13th 2007:

" Portfolio begun April 1, 2002 with $40,000"

[actually the portfolio is only 2.9% ahead of the SPY]

July 2nd 2007:

"Portfolio has risen Portfolio 2, begun in 2002, focuses on stocks with significant dividends and dividend growth, as well as good potential to grow in price."

[actually the portfolio is now trailing the SPY by 6.6% and will continue to fall further and further behind until a change in strategy is implemented in 2008.]

Nov 16th 2007;

" Since inception, this Portfolio has risen 1% more than S&P 500"

[actually the portfolio is now trailing the SPY by 8.3%.]

"It has provided significant dividends and has never dropped more than 10% from any value it has attained."

[actually 12/31/2002 it was down 23% from its starting value. Later in Feb. 2009 it will take a deeper drop of 45% from its high at the end of 2006 under a "new" strategy]

Phase Two - The Reset

Jan 15th 2008

" Since inception, this Portfolio has stayed even with the S&P 500"

[it is trailing the S&P now by 9.5%]

" Special note: While this Portfolio 2 has "held its own" with the S&P 500 since its creation, I am not satisfied with its performance. I want to beat the market."

" I will be modifying the strategy and holdings of Portfolio 2 to reflect the new research and methods."

May 18th 2008:

" Begun January 1, 2008 with $51,168

Current value of portfolio (4/30/08): $47,526

" Using E*Trade's "Income Estimator," the dividends from this portfolio over the next 12 months are anticipated to be at least $1840. They will probably be higher…

  • Yield based on present value of portfolio: 3.9%
  • Yield based on beginning value of portfolio: 3.6%"

[first mention of YOC and is related to new reset of 1/1/2008]

Jun 30th 2008: Data as of June 1, 2008

" Therefore, for performance-tracking, I have reset the Dividend Portfolio with a new inception date of January 1, 2008."

" Dividends expected over next 12 months (minimum): $2420

Actual dividends should be higher, because E*Trade's "Income Estimator" does not include dividend increases until announced by each company.

  • Yield based on present value of portfolio ($46,783): 5.2%
  • Yield based on re-inception value of portfolio ($51,168): 4.7%
  • Yield based on original value of portfolio ($40,000): 6.1%"

[actually what really happened is it took 5 years until 2013 to obtain this dividend run-rate which you will see in any of DVK's current articles - SURE but dividends always go up! It however makes my own estimate in this Mythbuster article a little overly optimistic on the downside. In other words the dividend run-rate in this new portfolio crashed much farther than he wanted to let on. Since $2420 was the run-rate spelled out in June 2008, where is this data point on the trend chart of dividend run-rates - this is something that has always confused me?? Was E*Trade's "Income Estimator" off?]

"

  • Bank of America (NYSE:BAC) 7.5%
  • Barclays (NYSE:BCS) 11.9%
  • Chevron (NYSE:CVX) 2.6%
  • Emerson Electric (NYSE:EMR) 2.1%
  • General Electric (NYSE:GE) 4.0%
  • Kinder Morgan Energy Partners (NYSE:KMP) 6.6%
  • McDonalds (NYSE:MCD) 2.5%
  • Realty Income (NYSE:O) 6.7%
  • Pepsico (NASDAQ:PEP) 2.5%
  • Royal Bank of Canada (NYSE:RY) 3.9%
  • Sherwin Williams (NYSE:SHW) 2.5%
  • Telefonica (NYSE:TEF) 4.3%

Portfolio contains about 1% cash. As stated earlier, I have completed the renovation "

Aug 2008:

"Current value of portfolio (7/31/08): $44,472 (-13%)

  • Dividends received so far in 2008: $1321
  • Dividends expected over next 12 months (minimum): $2039"

[dividend run-rate has dropped]

July 2009:

" Current value of portfolio (7/1/09): $35,232 (-31%)

  • Total dividends received in 2008: $2063
    • on the re-inception value of $51,168."

[actual dividends $2063 in 2008; it will be 3 years before seeing this total again]

" The goal is that these yields will reach 10%within 10 years."

[I develop a more accurate 10 x 10 that is concerned with price here:]

Oct 2009:

" The Dividend Portfolio is also ahead of the S&P 500 since its creation in 2002. While it has lost 2% in total value (vs. the S&P 500's loss of 8% in the same time period), its real purpose is to generate growing dividends.

Current value of portfolio (10/1/09): 39,226 (-2%)[reporting gains since 4/1/02 start]

Total dividends received in 2008: $2063"

[once again the SPY would have grown to$42,568 leaving the DG portfolio trailing it by about 8%. Also note a subtle change in purpose - the reason the overhaul in 2008 was started was to improve performance ("beat the market") now it is to generate growing dividends. This is somewhat surprising since the focus was always on dividends and dividend growth.]

March 2010:

April 2010:

"The Dividend Portfolio is also ahead of the S&P 500 since its creation in 2002. It has gained 6% in total value vs. the S&P 500's loss of 4% in the same time period. But its real purpose is to generate growing dividends. It is doing that: In 2009, the portfolio took in 19% more dividends than in 2008.

Current value of portfolio (April 1, 2010): $44,671 (+12%)"

[actually S&P 500 would have been $47,617, a gain of 19%]

Dec 2010:

" here is the total performance of the Dividend Portfolio. It has handily beaten the S&P 500 since inception.

Origination date: April 1, 2002: $40,000

Current value of portfolio (December 1, 2010): $47,195 (+18%)"

[actually S&P 500 would be $48,712 (+22%)

Feb 2011:

"Origination date: April 1, 2002: $40,000

Current value of portfolio (February 1, 2011): $48,615 (+22%)"

[actually S&P 500 would be $53,180 (+33%)

June 2011:

"Origination date: April 1, 2002: $40,000

Current value of portfolio (June 1, 2011): $53,124 (+33%)"

[actually S&P 500 would be $55,992 (+40%)

Phase Three - The Sting

Aug 2011:

" The Portfolio has a 5.2% yield on cost" [$2014 dividends/$40,000 cost]

" I now consider the inception date of this portfolio to be June 1, 2008, which is when the portfolio re-construction was completed."

"Origination date: June 1, 2008: $46,783"

[remember that goal of 10% YOC in 10 years articulated in July of 2009, that was based on a start date of Apr. 2002, which is now surprisingly at 9.5 years. So let's reset it to June 1 of 2008, maybe that will help.]

Sept 2011:

" Yield on cost: 4.5%. This is the projected yield on the original amount in the account when it was converted to a dividend-growth portfolio on June 1, 2008. That amount was $46,783."

[From this point to the present can be viewed in my other articles and blog posts on the subject.]

Another Viewpoint

"in mid-2003…Portfolio 2 [dividend portfolio] was refocused onto dividend-paying stocks (types B & D), as I came to more fully appreciate the roll of dividends in total returns…" 1

"Type B Stocks - Blue Chips, Boring, dividend paying stocks

Type D Stocks - D stands for dividends 3-5%, higher dividend subset of type B stocks. Well established mature companies. Companies work hard to maintain their dividend history and dividend growth … companies such as JNJ and GE…" 1

To that end I have created a more continuous view starting Jan 1st 2004 and broke it into two pieces, one to the end of 2007, and the second a continuation to the end of 2016. Below is the data and the charts.

And now just for fun a reset of the account to 1/1/2008

Summary

The index I have added to the above data is the Guggenheim S&P 500 Equal Weight ETF (NYSEARCA:RSP). I believe along with others that an equal weight market index provides a more realistic index for standard portfolios in which the portfolio owners attempt some form of equal weighting themselves. As James Cloonan, founder and chairman of AAII points out in his latest book "Investing at Level3," cap-weighted indexes underweight the stocks most likely to provide the higher returns, namely small-cap and value stocks. As a result they underperform equally weighted indexes [and to some extent equally weighted portfolios.] It is therefore, and has been for some time, my opinion that when comparing your portfolio to a cap-weighted S&P500 index you have a 1-3% annualized advantage right out of the gate, even without showing any stock picking ability at all. So if you can't at least maintain an improving "gap" to the S&P500 during your accumulation years you are wasting a lot of time and money, which could be improved by using simpler investing techniques. Cloonan explains one such technique in his book, which I may expand on at a later date, but it essentially amounts to investing in RSP as a base for improved returns over the standard market average.

This blog is in no way to condemn other investing methods, it is more just an educational journey to see, if held on equal footing, these market experts are correct in that it is very hard to obtain a long-term advantage in the market, especially when comparing it to an equally weighted index. If you somehow come up with an advantage, the market is not without intelligence and will quickly discount or correct for any inefficiencies.

The only current portfolio that is static in nature, with more than a few years of history, is the one reported on by David Van Knapp [DVK]. This is merely a chore to compare this one static dividend growth philosophy to other more traditional index portfolios. The DVK account is not an account that is being used for retirement, so the internal income generated is of little consequence. The metric of choice in this account in order to be able to compare it to other accounts and indexes is the total return, or more specifically the dollar value of the account. The results of these comparisons were shown above along with a history of the changing thought process over 15 years of investing.

Conclusion

My only conclusion is that over 15 years of investing, or more, an investor engaged in active management of a stock portfolio is likely to change strategies a number of times, always looking for something better. Like many investors they may also not have a good grasp even of what their portfolio performance is, especially if they are adding new money to the mix regularly. Not the case in this example, but that is why my opinion is (as well as seasoned stock pickers like Jim Cramer) that you must have a well-established core investment of a market index fund before ever attempting a learning curve of individual stock investment.

References:

  1. Sensible Stock Investing - David P. Van Knapp
  2. Top 40 Dividend Growth Stocks for 2014 - David Van Knapp
  3. www.sensiblestocks.com from internet archive WaybackMachine
  4. www.longrundata.com - used for RSP and SPY data

Disclosure: I am/we are long RSP, GE, O.