M* Dividend investor newsletter results.

[clifp]

For many years I have been touting the M* Dividend Investor Newsletter
Not because I think the editor (Josh Peters) is a gifted stock picker, his picks for the most part are not much different, than the ones we see on the forum or are held by Wellesley. Rather I appreciate his disciplined approach to pick dividends and the detailed reports he produces.

The portfolio started 7 years ago with real money (Morningstars) of $100,000. In Dec 2006 he split the portfolio into two ~$100,000 portfolio.

Builder focusing on companies who's dividends grow fast JNJ, 3M are classic examples and the Harvest portfolio which has high yielding stocks (e..g Altaria MO) and lots of Master Limited Partnerships but lower growth rates.

Fourth Quarter 2011 Total Return Summary (including dividends) .	Q4/2011	CY 2011	From Dec29 2006*
Dividend Builder Portfolio	14.1%	11.5%	1.5%
Dividend Harvest Portfolio	12.8%	17.7%	7.2%
Combined MDI Portfolios:	13.5%	14.6%	4.2%
S&P 500 Index	11.8%	2.1%	-0.2%
Morningstar Dividend Leaders Index	10.4%	15.0%	-1.0%
Dow Jones Select Dividend Index	12.7%	12.4%	-0.7%

*annualized returns

Now obviously these returns look nice, but as Josh said the last year has been great for dividend stocks with everybody from Cramer to Suze Orman talking about them. Josh doesn't much care about the stock prices but rather the income they produced. He warns that in the future dividend stock will UNDERPERFORM the market, although who knows when that day will come.

This is the part I find particularly interesting. The current income from the portfolios.

12/31/10	Beginning Annualized Income	3,601.05
	Contribution from Dividend Increases	459.65
	Contribution from Dividend Reinvestment	182.81
	Contribution from Portfolio Changes	130.39
	Change in Interest Income on Cash	-1.05
12/30/11	Ending Annualized Income:	4,372.85
	Dividend Increases/Beginning Income	12.8%
	Total Growth of Annualized Income	21.4%

What this means is that $100,000 invested in 2007 when the market was higher would today be throwing of $4373 in dividend income, roughly 15% higher than when it started. This despite the portfolio at one point having 5 or 6 banks and psuedo/banks plus GE. It still has 3 banks and recently bought GE. Now some of this increase was due to dividend reinvestment which won't apply to a retiree but still, even with a terrible market and a bunch banks stocks dividend income was pretty reliable.

The story is much better for the higher yield harvest portfolio.

12/31/10	Beginning Annualized Income	6,627.64
	Contribution from Dividend Increases	348.22
	Contribution from Dividend Reinvestment	411.97
	Contribution from Portfolio Changes	137.65
	Change in Interest Income on Cash	-0.82
12/30/11	Ending Annualized Income:	7,524.66
	Dividend Increases/Beginning Income	5.3%
	Total Growth of Annualized Income	13.5%

Change in Income(ex-cash):897.84

Back in Jan 2007 the Harvest portfolio's income was $5646 so it has gained almost $2K in income. Now much of this gain is due to dividend reinvestment. However, a retiree this year could have withdrawn a bit over 5% and still had his income increase by 5.3% well exceeding the inflation rate. The harvest portfolio benefited by only having one bank, and also for invested in MLPs which have done very well.

Of course the normal caveats apply, and I personally don't find most dividend stocks particularly cheap. Still I did find it encouraging that even in horrible market dividends can still pay the bills.

For you mutual fund types, this is basically the approach Wellesley and Wellington have been pursuing the last 40 years (plus a significant bond portfolio of course.)

 

[NW-Bound]

Now obviously these returns look nice, but as Josh said the last year has been great for dividend stocks with everybody from Cramer to Suze Orman talking about them. Josh doesn't much care about the stock prices but rather the income they produced. He warns that in the future dividend stock will UNDERPERFORM the market, although who knows when that day will come.

I own some dividend stocks, but just not enough of them. That, plus foreign stocks, hurts my 2011 performance. When I look at some of my dividend stocks, their P/E is higher than that of the S&P as a whole, and their projected growths are not that great.

I always like to be a contrarian, so find it difficult to get more dividend stocks now. I will try to be patient.

 

[Lsbcal]

I was just comparing (prior to reading this thread) Vanguard High Dividend Yield Index versus Value Index fund (VHDYX vs VIVAX). I noticed the top 10 stocks showed a lot of overlap. Both funds tracked pretty well for some years up to around the August 2011 time when Treasuries took off and markets had problems. VHDYX did a lot better for a few months then. Now they've been tracking together over the last 3 months.

So this is recency in spades! Maybe it will continue and maybe not.

I recall that when comparing value strategies, dividend yields are one of the weakest value strategies over several decades. I think that is why book to market is the choice for selecting value stocks as per French Fama, not dividend yields. But there are times where some value strategies (dividend yields, low P/E, etc.) do better then others. Just would not count on this to last many years.

BTW, the VG Value Index fund has quite a decent dividend yield. Several recognizable names in there like Exxon Mobile, Chevron, Johnson & Johnson, and even Intel! And this fund qualifies as a decent value tilted pick based on the French-Fama concept of loading to value. If you believe the value premium will continue in the future.

 

[Ronnieboy]

The portfolio started 7 years ago with real money (Morningstars) of $100,000. In Dec 2006 he split the portfolio into two ~$100,000 portfolio.

Builder focusing on companies who's dividends grow fast JNJ, 3M are classic examples and the Harvest portfolio which has high yielding stocks (e..g Altaria MO) and lots of Master Limited Partnerships but lower growth rates.

If he started the portfolio in 2005, does that mean it doubled in 2006 to do the split?

How many stocks are kept in each portfolio?

 

[clifp]

If he started the portfolio in 2005, does that mean it doubled in 2006 to do the split?

How many stocks are kept in each portfolio?

Morningstar add a additional $100K in Dec 2006, the combined portfolio was split and Harvest portfolio "bought" some of the combined portfolio's stocks.

The Harvest has 19 stocks, the builder 17 stocks, Abbot ABT is in both.
Last year he sold or trimmed 7 positions and purchased 11 positions several of which were add on purchases as dividends accumulate, so a roughly 20-25% portfolio turnover.

The 30 day free trial is worth more than you'll pay for it. The supplemental reports on valuing dividends are particularly valuable. I also find the newsletter to be worthwhile although if you don't follow many of his recommendation maybe not. I personally follow about 3/4th of his recommendations, some of my best performers are stocks he said to sell , and some of my worse performers are stock he said to sell. I have not yet had a case where he said buy XYZ, I didn't and I regretted it.

 

[foxfirev5]

I agree the results are impressive. But I'm afraid to play follow the leaders. It has never worked out for me. As they say I believe the train has left the station. For the value/income portion of my Roth portfolio I'm sticking with Wellesley and Wellington. I'm not to keen in the financials Wellington is holding but what do I know? Over the years they've done a pretty good job.
However, in my 401k/other IRA's the bulk of my portfolio I'm using a simple total return approach w/ TSM/TISM/TBM/Cash.

 

[Zathras]

I agree the results are impressive. But I'm afraid to play follow the leaders. It has never worked out for me...

I agree with you, which is why I found the newsletter so valuable. Josh doesn't just give you a list of stocks to buy or sell. He goes in depth into how to best judge for yourself. What calculations to make and which stats are most telling.
Which stock he is keeping an eye on and why. Research into to boards and companies.
What I found most impressive was that he would own up to mistakes, discuss them and identify what he should have done.

 

[Nords]

Of course the normal caveats apply, and I personally don't find most dividend stocks particularly cheap. Still I did find it encouraging that even in horrible market dividends can still pay the bills.
For you mutual fund types, this is basically the approach Wellesley and Wellington have been pursuing the last 40 years (plus a significant bond portfolio of course.)

One of the few hardcover books I still own is Josh's "Ultimate Dividend Playbook". After a decade of ER and just about every different style of investing, I keep coming back around to dividends.

You've been pretty persuasive on the subject. So... are we renewing our angel memberships this year?