Benchmark Needed for Extra-Safe Dividend Portfolio

[NW-Bound]

 

[aja8888]

I'm not familiar with the term "reverse-engineer." It sounds like it might be some sort of sexual position.

That term "reverse engineer" usually applies to the act of taking something apart to see what it is made of and how it works in order to make an exact and functional copy.

(aka, "it's made in China", or a "Chinesium" product)

 

[NW-Bound]

Hey, that's what I have been doing since I was 12, and I am not Chinese. However, I usually try to make it better, not just to copy it.

 

[Ronnieboy]

I tried to follow everybody's suggestions. I took the first 10 (or 20 in one case) of my 24 dividend stocks in alphabetical order and pretended I was working with a $100,000 portfolio ( I have way more than that in the dividend portfolio). I'm only mentioning this because I need you to know this stuff isn't just fun and games (I guess maybe it's still mainly fun and games). Anyhow, I digress:

I went to the Backtest Portfolio Asset Allocation website and here's what turned up using various dates (not deliberately, however). . I think Feb. 2018 is as far as I could go.

This was with my first 20 stocks: The dollars represent the final balance for the time period Jan. 2015-Feb. 2018.

My Portfolio:xxxxxxxxxxxxxxx $143,216 CAGR 12.01%
SPDR S&P DIV. ETFxxxxxxxxxx$134,068 CAGR 9.70%

Below are with my first 10 stocks but this goes from Jan 2015 to Dec. 2017 because I did something wrong with the backtester.

My portfolio: xxxxxxxxxxxxxxx $147,412 CAGR 13.81%
Van Total Bond Mktxxxxxxxxxx $106,775 CAGR 2.21%

My portfolio: xxxxxxxxxxxxxxx $147,412 CAGR 13.81%
Van Div Apprec. xxxxxxxxxxxx $134,187 CAGR 10.30%

And, this is from Jan 2017 to Dec. 2017
My portfolio:xxxxxxxxxxxxxxxxxx $126,630 CAGR 26.63%
Van 500 Indexxxxxxxxxxxxxxxxxx $121,668 CAGR 21.67%

(As a bonus for oldshooter, my last listed portfolio had a Sharpe ratio of 2.96; compared to a Sharpe of 4.84). I have no idea what a Sharpe ratio is, so I'll look at the video after I rest.

Based on your numbers, the main question I want to ask: What are the 24 individual stocks you hold?

I am investing the the dividend growth model myself.

 

[redduck]

Sure. Be glad to. I'll send you a PM on Monday. In the meantime I suggest you read, if you haven't already done so, ERD50's post (#150) in the thread, DIVIDEND PAYING STOCKS.

 

[Ronnieboy]

Sure. Be glad to. I'll send you a PM on Monday. In the meantime I suggest you read, if you haven't already done so, ERD50's post (#150) in the thread, DIVIDEND PAYING STOCKS.

Yes. I have read that thread and re-read that post specifically.

In theory, the example ERD50 gave works great. I prefer to do it the dividend way instead of the selling of shares way. If I have a choice.

 

[ERD50]

Yes. I have read that thread and re-read that post specifically.

In theory, the example ERD50 gave works great. I prefer to do it the dividend way instead of the selling of shares way. If I have a choice.

One of the points I made in that thread is that with non-dividend payers, you have a choice. You sell if/when you want.

It's the dividend payers that take that choice away from you. They distribute some of their value on their schedule, and you have no control over it.

But I'd be interested in seeing redduck's list - if he enters them in that portfolio website, he can save and share a link to it. Though we should expect a roughly 50-50 chance that any selection of stocks would beat the 'market'.

-ERD50

 

[redduck]

Since there has been such a over-whelming clamoring for my list of Dividend Stocks I thought that I would list them today.

I'm just listing the symbols because I'm guessing that someone will run the Portfolio Visualizer and publish the results as I don't do links on Sunday.

T, BUD, CAT, CVX, CSCO, EMR, XOM, GIS, T, JNJ, MCD, NSRGY. PEP, PG, RDS.B, SYY, UL, VZ, WMT, MSFT

 

[Luck_Club]

Since there has been such a over-whelming clamoring for my list of Dividend Stocks I thought that I would list them today.

I'm just listing the symbols because I'm guessing that someone will run the Portfolio Visualizer and publish the results as I don't do links on Sunday.

T, BUD, CAT, CVX, CSCO, EMR, XOM, GIS, T, JNJ, MCD, NSRGY. PEP, PG, RDS.B, SYY, UL, VZ, WMT, MSFT

Thanks I was about to send a private message asking for it.

 

[Ronnieboy]

One of the points I made in that thread is that with non-dividend payers, you have a choice. You sell if/when you want.

It's the dividend payers that take that choice away from you. They distribute some of their value on their schedule, and you have no control over it.

But I'd be interested in seeing redduck's list - if he enters them in that portfolio website, he can save and share a link to it. Though we should expect a roughly 50-50 chance that any selection of stocks would beat the 'market'.

-ERD50

Yes but that is the plan, to have the dividend payers distribute that value to me like it is a paycheck.
One could theoretically argue that due to a series of unfortunate events that one might have to sell non dividend paying stocks at a time that isn't desired. Therefore being forced to sell to have monies....

It really doesn't matter, your post basically explained that there were two ways to do the same thing. Just like driving on the right hand side of the road (US) or driving on the left hand side of the road (UK). You still get to the same destination, can one be said it is better than the other?

 

[Ronnieboy]

Since there has been such a over-whelming clamoring for my list of Dividend Stocks I thought that I would list them today.

I'm just listing the symbols because I'm guessing that someone will run the Portfolio Visualizer and publish the results as I don't do links on Sunday.

T, BUD, CAT, CVX, CSCO, EMR, XOM, GIS, T, JNJ, MCD, NSRGY. PEP, PG, RDS.B, SYY, UL, VZ, WMT, MSFT

Thanks for the info-

Great list, I have 18 of those already But what are the other 4...

 

[ERD50]

...
It really doesn't matter, your post basically explained that there were two ways to do the same thing. Just like driving on the right hand side of the road (US) or driving on the left hand side of the road (UK). You still get to the same destination, can one be said it is better than the other?

In my posts in that thread, I wasn't focused on one being 'better' than another. I was just providing a counter (with data), that div payers had some significant special attributes ('safer', lower dips in bad times, etc) over the Total Market. The charts didn't back those claims up.

But there also didn't appear to be anything 'wrong' with the Div Payers, they did fine. Though they might cause increased taxes, depending.

-ERD50

 

[ERD50]

Since there has been such a over-whelming clamoring for my list of Dividend Stocks I thought that I would list them today.

I'm just listing the symbols because I'm guessing that someone will run the Portfolio Visualizer and publish the results as I don't do links on Sunday.

T, BUD, CAT, CVX, CSCO, EMR, XOM, GIS, T, JNJ, MCD, NSRGY. PEP, PG, RDS.B, SYY, UL, VZ, WMT, MSFT

OK, curiosity got the best of me.

Well, like I said, I'd expect any pick of stocks to have ~ 50-50 chance of outperforming the market. And these picks didn't do it. Not for the 10 year period. Charts and details here:

https://goo.gl/pHVAvM ( 10 year )

[EDIT: not quite 10 years...

Note: The time period was automatically adjusted based on the available data (Aug 2009 - Feb 2018) for the selected asset: Anheuser-Busch Inbev SA (BUD) ]​

Not only did the "div-payers" under-perform in the "Total Return" view, they didn't provide any more cash flow (divs) than VTI most years, and the 'worst years' were worse than VTI.

What's the attraction again?

Portfolio    Initial        Final        CAGR    Stdev    Best Year    Worst Year    
VTI -----    $1,000,000    $3,295,275     14.90%     12.45%    33.45%        0.36%        
DIV Picks    $1,000,000    $2,722,486     12.38%     11.02%    23.21%       -4.05%

-ERD50

 

[NW-Bound]

... Just like driving on the right hand side of the road (US) or driving on the left hand side of the road (UK). You still get to the same destination, can one be said it is better than the other?

As long as one does not swerve back and forth?

I have both dividend and growth stocks in my portfolio. And I trade them when I feel like it.

 

[samclem]

One thing to be aware of: in selecting stocks that pay high dividends, it is easy to wind up with a portfolio that is heavily skewed toward a few market sectors (financials, utilities, etc). The reduced diversification leads to more exposure to risks that disproportionately affect those sectors (interest rates, RE prices, etc.)
Some people who had constructed "safe" portfolios of dividend payers discovered how heavily tilted they were toward financials in the 2008 meltdown.

 

[NW-Bound]

One thing to be aware of: in selecting stocks that pay high dividends, it is easy to wind up with a portfolio that is heavily skewed toward a few market sectors (financials, utilities, etc). The reduced diversification leads to more exposure to risks that disproportionately affect those sectors (interest rates, RE prices, etc.)
Some people who had constructed "safe" portfolios of dividend payers discovered how heavily tilted they were toward financials in the 2008 meltdown.

+1

Looking at redduck's list I saw he has a quite a few different stocks in there. Yes, even Microsoft is no longer looked at as a growth stock, although its dividend is less than that of Cisco.

 

[redduck]

Thanks for the info-

Great list, I have 18 of those already But what are the other 4...

KO and O. While I like the idea of a list of 20, I did not deliberately leave these two off (or, so I say).

The other two are SBUX and TJX. They were added recently, so I deliberately did not include them.

I hope that comes out to 24.

That was easy. Eventually, I'll have to deal with ERD50. That won't go well for the duck.

 

[OldShooter]

... That was easy. Eventually, I'll have to deal with ERD50. That won't go well for the duck.

Well, it's always good to learn. And that's the point of benchmarking. @ERD50's is IMO the best kind of benchmarking (not to say that it is right; that remains to be discussed) because it evaluates an existing portfolio against a reasonable alternative.

I am enjoying the discussion here.

 

[Lsbcal]

KO and O. While I like the idea of a list of 20, I did not deliberately leave these two off (or, so I say).

The other two are SBUX and TJX. They were added recently, so I deliberately did not include them.

I hope that comes out to 24.

That was easy. Eventually, I'll have to deal with ERD50. That won't go well for the duck.

Actually I have to congratulate you for offering up a chance to analyze a real portfolio. And for discussing how to do this in an analytical way.

Firstly, those stocks have done pretty well as a group according to ERD50's data source. Maybe you could have done better (in retrospect) with a simpler approach but you have skin in the game and that is what counts. Second, it never hurts to put your ego aside and go for the best portfolio that matches your needs.

Also benchmarking is over a period of time and that carries the risk of emphasizing just what worked in the short term past. I would try to benchmark over perhaps 2 bear/bull cycles if the data is available. Dividend stocks have done pretty well as a group in recent years because some have tried to compensate for low bond yields (speculative upsupported by data comment on my part).

Sometimes international stocks outperform US stocks (2003-2007) and sometimes small/midcaps do nicely (like just after 2009 upturn). Perhaps you would want some exposure to these areas? I would, particularly in international should the US stumble a bit over the coming years.

To illustrate the US vs international here is a chart I maintain showing 3 periods. The curves are reset at the beginning of each period to show that period's best performer. The US has won in 2 out of the 3 periods.


.

 

[ERD50]

...

That was easy. Eventually, I'll have to deal with ERD50. That won't go well for the duck.

Don't worry about dealing with me. You only have to deal with the data, and those sticky things called 'facts'!

-ERD50

 

[redduck]

...Sometimes international stocks outperform US stocks (2003-2007) and sometimes small/midcaps do nicely (like just after 2009 upturn). Perhaps you would want some exposure to these areas? I would, particularly in international should the US stumble a bit over the coming years.

I might be a bit more diversified than I seem to be in my postings. I do own VXF (Van. Extended Market ETF, which is a combination of small and medium caps. I also own VEU (Van. FTSE All World ex US, which is another ETF). However, Vanguard and now you have reminded me that I might want to consider increasing my percentage both these areas. Probably a good idea to do so.

 

[redduck]

Don't worry about dealing with me. You only have to deal with the data, and those sticky things called 'facts'!
-ERD50

OK, so you, the data and the facts are way ahead on points. But, I figure with a hail-Mary, followed by a successful on-sides kick, followed by another hail-Mary and I'm right back in the game.

I still have a few things going for me in this discussion (but, I'll start with one.

One. I imagine that it's occurred to you (with good reason) and to others that maybe I'm just a terrible dividend stock picker--just the worst. (Gee, duck, great hail-Mary. Just how many points do you get for that)?

Here's what I did: I went back in the threads as far as I could (2004) regarding dividends, picked out the first six posters I came across and recorded their Dividend Selections whether they had the selection in their portfolios or on their Watch Lists. I tried to select their first three or four stocks mentioned, no duplicates included, until I reached 20 stocks.

The members I found were: unclemick, Renfeme, soupcxcan, Berkshire Bull, yakers, and Works for Beer.

Here are the selections made in 2004-5 which covers a fairly decent time-period if we go to 2018.

ED, XOM, JPM, NFG, MO, BAC, RRD, PFE, JNJ, LOW, INTC, KEY, WEC, CAG, MRK, EXC, D, VZ, CVX, GE

It only takes a few minutes to impute the stocks into the Portfolio Visualizer, but I don't know how the link thing works (I'll try to learn). So, this is as far as I can go with this.

 

[rayvt]

OK, curiosity got the best of me.
Not only did the "div-payers" under-perform in the "Total Return" view, they didn't provide any more cash flow (divs) than VTI most years, and the 'worst years' were worse than VTI.

What's the attraction again?

Silly, you know what the attraction is. "Woo-HOO!!!! Free money! They pay me to own this stock!!! {eleventy}"

 

[rayvt]

One thing to be aware of: in selecting stocks that pay high dividends, it is easy to wind up with a portfolio that is heavily skewed toward a few market sectors (financials, utilities, etc). The reduced diversification leads to more exposure to risks that disproportionately affect those sectors (interest rates, RE prices, etc.)
Some people who had constructed "safe" portfolios of dividend payers discovered how heavily tilted they were toward financials in the 2008 meltdown.

There was a guy on Seekingalpha (dividends#1 as I recall) that bragged about his dividend portfolio. He started out with AGNC and MO, and then switched 100% to MO. He got a lot of negative comments of people telling him he was taking huge risks. And doubting that he actually had $1M+ in MO. I guess he got tired of that, because his last article was a year ago.

 

[OldShooter]

@duck, FWIW there are a few things that come to my mind when reading this thread, starting with your original post.

• Does a dividend-oriented strategy win battles but lose the war? Really what we are all after is total return at an acceptable risk. By concentrating only on dividend stocks are you passing up stocks that will produce greater total return without increasing risk significantly? This is why I think benchmarking the equity portion of any portfolio against something like VTI is so important.
• Is stock-picking a good idea for individual investors? First, it is very hard for an individual to identify and buy an adequately diversified portfolio just due to the quantity of stocks and sectors necessary. Modern Portfolio Theory guru & Nobel laureate Harry Markowitz is quite succinct on the subject: https://youtu.be/TbMjIn1p-i0 Second, as @ERD50 points out, the arithmetically guaranteed result (before expenses) for all stock pickers is simply the market average for whatever market or sector they are playing in. Without serious diversification, though, the standard deviation aka risk of an individual's portfolio is virtually guaranteed to be higher than that of the market average even if he/she is lucky enough to be in the 50% of stock pickers that roll heads instead of tails.

Just sayin'

Thanks again for being a good leader on this thread. I agree with @Lsbcal on that and am enjoying the read.