Review of Nov 2008 Dividend Portfolio Reccomendations

[Running_Man]

In November 2008 there was a thread requesting 10 stocks for a Dividend Portfolio.
http://www.early-retirement.org/foru...lio-40236.html
Near all time highs in the market it is good to review what you were thinking and how right or wrong your thoughts were at the time so that you can review if your ideas work as well as you think they should. At the time the S&P500 was at 968 and this was before the last leg down which dropped to around 680 in March 2009.


The 10 stocks I recommended consisted of 2 groups, 6 stocks taken from the DJIA for dividend stocks yielding fairly well with a Value Line top rating for safety, and having good dividend growth prospects they were : KO MCD HD JNJ T MSFT and this was to be 80% of the portfolio. The other 4 stocks were more risky and to be 20% of the portfolio FUN WRE ABX ITW.

Results? A portfolio of $250,000 in vested in the 10 stocks recommended on Nov 1, 2008 would have a value of $619,312 today. This would have been an investment of $33,333 in each of the 6 Dow Stocks selected and $12,500 in the more speculative grade stocks. An SPY ETF with a $250,000 investment on 11/1/2008 is worth $557,915 today. However the 10 stock portfolio started out with a total portfolio dividend in the prior 12 months of $9,446 in 2008 and increasing at an annual rate of 8.1% per year to $17,677 over the last 12 months. SPY would have equivalent dividends of $7,174 and $11,295 with a dividend growth rate of 5.8%.

Of the stocks selected one did poorly in the DOW group — T growth here never occurred though the dividend was not cut and grew at a compound annual rate of 2.3% over the period, which does exceed inflation but not meeting the investment goal. MCD, HD and MSFT all grew their dividends at an annual compound rate between 11.5 and 16 percent. Considering these are stodgy old Dow Jones stocks selected at the time shows the power of investing in stocks with solid dividends with good growth prospects.

In the more speculative group two stocks were bad picks ABX which was more for exposure to gold in case of further financial turmoil in the markets and WRE which cut it’s dividend in 2012 and has been very slow to recover. FUN is a mixed picture as it cut it’s dividend in 2009 as the recession hit the amusement park hard but it has since rebounded with the economy greatly, more than tripling the original investment.

More important to me as an income investor, the 10 stock portfolio started with an advantage in dividends of $2,272 per year in 2008 and grew that to an advantage of $6,381 in the last 12 months. Over the nearly 8 years there was more than 32K in extra dividends to spend from the 10 stock portfolio than the SPY portfolio.

The lesson I learned was consider the safety of the dividend for all stocks purchased. I was reaching at the time in order to pull the entire portfolio up to a 4 percent yield. Fortunately I knew enough to limit the positions in the portfolio.

For some of the other portfolio’s Cycling Investors was divided evenly into 10 stocks of 25K each EMR GE ITW JNJ KIM KO MMM PG SYY WRE and at this point has a value of $470,730 and dividends starting at $10,522 and ending at $13,170 a compound growth rate of 2.8 percent for the income provided. Investments in GE KIM and WRE all were impacted most seriously by the continuation of the bear market into 2009 and have had trouble recovering.

Hamlet’s suggested portfolio was MO USB PG GE KO O NUE JNJ MMM MSFT, had the good choices of O instead of WRE and MO instead of FUN that I had but was impeded by GE USB and NUE. Portfolio has an ending value of $520,038 and had the highest starting income of $11,405 and an ending income of $15,622 a compound growth rate of 4.1%. Hamlet’s portfolio could have been far better had he avoided USB bank, which was in risk but a popular choice as strong at the time, GE which was in the same boat and NUE - Nucor which had already cut their dividend in 2007 and I would avoid companies for dividend income that have recently cut dividends.

All of this does show, even though the market was to fall 35% in 5 months from this point a long term look at buying even if early can be very profitable over a longer point of time.

[pb4uski]

$250k invested in Vanguard Total Stock Fund (admiral shares) on 11/1/2008 with dividends reinvested would be worth $684k at the end of yesterday.

[Running_Man]

Quote:

Originally Posted by pb4uski $250k invested in Vanguard Total Stock Fund (admiral shares) on 11/1/2008 with dividends reinvested would be worth $684k at the end of yesterday.

The numbers do not include dividends reinvested, and much of that increased value you see is from the Oct 2008 Dec 2008 and March 2009 dividends that were reinvested at much lower level. If instead VTI was selling along that declining curve the results are going to be quite a bit lower than the ten stock portfolio. Since the dividends earned by VTI it was lower every year I think the value is going to be under 500K

[eta2020]

Quote:

Originally Posted by Running_Man The numbers do not include dividends reinvested, and much of that increased value you see is from the Oct 2008 Dec 2008 and March 2009 dividends that were reinvested at much lower level. If instead VTI was selling along that declining curve the results are going to be quite a bit lower than the ten stock portfolio. Since the dividends earned by VTI it was lower every year I think the value is going to be under 500K

I don't think so since S&P returned 189% with dividends reinvested and 146% without.

VTI would not be far from S&P 500. pb4uski looks to be right.

https://dqydj.com/sp-500-return-calculator/

[Running_Man]

OK I did the numbers extending all the dividends for the 10 stock portfolio, then laid out all the distributions for VTI. Each December 31st at the end of the year I sold enough shares in VTI to provide for the shortfall in dividends compared to the 10 stock portfolio. I utilized a commission fee of $10 for the transaction and used the closing price on 12/31/XX as the sales price.

So on 11/3/2008 there would have been a purchase of 5,202 shares of VTI at $48.06
The income provided by the 10 stock portfolio by year is
2008 $ 9,446.48
2009 $ 9,530.92
2010 $ 9,605.28
2011 $10,912.45
2012 $12,168.68
2013 $13,842.84
2014 $15,057.70
2015 $16,567.89

In 2008 the VTI portfolio would have provided $6,970.68 there is a shortfall of $2,475.80 which results in selling on 12/31/08 of 55.56 shares @ 44.74 reducing shares to 5,146.44.

In 2009 the VTI portfolio provides $5,697.11 shortfall is $3,833.81 results in selling of 68.19 shares @56.37 reducing shares to 5,078.25 @ 12/31/2009

In 2010 the VTI portfolio provides $5,829.32 shortfall is $3,775.96 results in selling of 58.31 shares @64.93 resulting in 5,019.84 shares @ 12/31/2010

In 2011 the VTI portfolio provides $6,189.59 shortfall is $4,722.87 results in selling of 73.61 shares @64.30 resulting in 4,946.34 shares @ 12/31/2011

In 2012 the VTI portfolio provides $7,731.12 shortfall is $4,437.56 results in selling of 60.69 shares @73.28 resulting in 4,885.64 shares @12/31/12

In 2013 the VTI portfolio provides $8,173.68 shortfall is $5,669.16 results in selling of 59.21 shares @95.92 resulting in 4,826.44 shares @ 12/31/13

In 2014 the VTI portfolio provides $9,020.61 shortfall is $6,037.09 results in selling of 57.05 shares @ 106 resulting in 4,769.39 shares @ 12/31/2014

In 2015 the VTI portfolio provides $9,858.32 shortfall is $6,709.56 results in selling of 64.43 shares @ 104.30 resulting in 4,704.96

In total the number of shares needed to be sold in order to equalize income is 497.04 about 10 percent of the shares originally purchased and running at an annual rate of about 1.4% of the share count at this point.

Coming into today then you have 4,704.96 shares @ $109.69 for a value of $516,077.41 versus the 10 stock portfolio of $611,375.50 updated just now for the closing stock prices

[eta2020]

I was not computing in selling shares (since such idea never crossed my mind)

I agree your portfolio does have better yield which is something I would expect.

[Running_Man]

As a side note, anyone that would have deferred Social Security at age 62 on November 1, 2008 and instead used those funds that would have been in VTI is going to have to get very lucky to ever catch an age 62 claimer of SS from November 2008

[jimnjana]

What 10 stocks would you recommend to build a dividend growth portfolio today?

[target2019]

We've decided to invest on a regular basis into SCHD Schwab Dividiend ETF. It would require too much effort right now to pick individual companies that are valued to my scheme.

SCHD ETF: Holdings, Quote, Analysis, Ratings | ETF.com

That page has top 10 holdings and sector percentages:

Microsoft Corporation 4.72%
Johnson & Johnson 4.70%
Intel Corporation 4.61%
Pfizer Inc. 4.60%
Verizon Communications Inc. 4.60%
Procter & Gamble Company 4.53%
PepsiCo, Inc. 4.39%
Chevron Corporation 4.17%
Coca-Cola Company 4.15%
Exxon Mobil Corporation 4.11%

Another suggestion is to look at the top 10 holdings of Wellington and Wellesley funds.

[Running_Man]

The original thesis of holding 10 stocks 80% in the Dow 30 and 20% more speculative is still valid in my opinion, my recommendation for a 10 stock dividend portfolio today would be KO MCD HD JNJ MMM MSFT replacing T with MMM as T’s dividend growth is too slow and no longer in the Dow 30. Each would be 33K.

Of the other 4 stocks of 5% each (12.5K) I would drop ABX FUN and WRE and keep ITW. Replacing the 3 would be AMGN WEC LMT. This portfolio will be updated for balancing and starting on Thursday Sept 15th right at the open. I will then update results on this quarterly along with the 5% income portfolio.

[Forced to Retire]

According to the website linked below, if you invested $250K in VTI on November 1, 2008 that would be worth $631,250.02 today, with all dividends reinvested.

Divicalc - a dead simple dividend and return calculator.

Quote:

Originally Posted by pb4uski $250k invested in Vanguard Total Stock Fund (admiral shares) on 11/1/2008 with dividends reinvested would be worth $684k at the end of yesterday.

[pb4uski]

I think I trust Morningstar more. $26,669.31*25 = $666,732.75

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

Looking at the output, it looks like the link you referenced calculates return if dividends were taken in cash (not reinvested) since the value is the ending value based on share purchased at inception, plus distributions received.

[Running_Man]

Again since VTI has much lower dividend yield for an income portfolio the results are not the same and would have been $516,077.41 assuming no taxes for either portfolio. According to the Stock Charts performance chart if dividends had been reinvested for the 10 stock dividend portfolio the portfolio value as of today would be $820,458

[Running_Man]

And based on opening prices today the Dividend Income portfolio would be:
KO 793 shares
MCD 290 shares
HD 265 shares
JNJ 283 shares
MMM 190 shares
MSFT 594 shares
AMGN 73 shares
WEC 209 shares
LMT 53 shares
ITW 108 shares

Total annual income based on current dividend $6,814.98. Portfolio will be updated quarterly.

Comparisons will be run with DVY which will start with 2,967 shares and $7,832.88 in income
VTI which will start with 2,296 shares and $4,750.42 in dividends and SDOG, my favorite dividend ETF with 6,135 in shares and $8,098.20 in income the winner in the income category and using this in place of VTI or the 10 stock dividend income portfolio is quite acceptable to my mind.

[redduck]

Quote:

Originally Posted by Running_Man In November 2008 there was a thread requesting 10 stocks for a Dividend Portfolio. The 10 stocks I recommended consisted of 2 groups, 6 stocks taken from the DJIA for dividend stocks yielding fairly well with a Value Line top rating for safety, and having good dividend growth prospects they were : KO MCD HD JNJ T MSFT and this was to be 80% of the portfolio. The other 4 stocks were more risky and to be 20% of the portfolio FUN WRE ABX ITW...

Running-Man:
If I remember correctly that in Dec 2008, the Value Line numbers for ITW were: Safety 1; Financial Strength A++, Price Stability 95; Price Growth Persistence, 65; and Earnings Predictability, 100. The question is: What led you to put ITW into the more risky category?

[Running_Man]

Quote:

Originally Posted by redduck Running-Man: If I remember correctly that in Dec 2008, the Value Line numbers for ITW were: Safety 1; Financial Strength A++, Price Stability 95; Price Growth Persistence, 65; and Earnings Predictability, 100. The question is: What led you to put ITW into the more risky category?

I had admired ITW for a number of years, probably going back 10-15 or so but the dividend was always below 2% even though it was a steady grower. I had spoken to the head of internal audits in order to understand how they assimilated all the companies they purchased and to see if they would do it successfully, I was impressed by the methods and convinced they would continue to grow at 10 percent for years to come. While the Price Growth persistence was under my normal target all the other measures were at the top, by Oct 2008 the dividend was up to 3.8% and I thought that was an extraordinary value. Right on that one but wrong on the other 3