August Model Portfolio - Sure Dividend

[Pages:6]Sure Dividend

HIGH QUALITY DIVIDEND STOCKS, LONG-TERM PLAN

August 2014 Model Portfolio

By Ben Reynolds

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20 Stock Model Portfolio

The 20 Stock Model Portfolio weights the Top 20 high quality dividend stocks based on the 8 Rules of Dividend Investing so that stocks with lower correlations and better quality scores are more heavily weighted in the portfolio.

The portfolio is designed to spread risk across various factors so investors are not overly exposed to any one stock, industry, or risk factor. The 20 stock portfolio is well diversified, with no holding making up more than 10% of the total portfolio value.

Portfolio Construction Rules

Each month, the portfolio will be updated. Holdings will be sold if they have a P/E ratio over 40, or if a dividend payment is reduced or eliminated. Additionally, if a position falls out of the top 40% of rankings using the 8 Rules of Dividend Investing, it will be eliminated and replaced with a higher ranked stock.

Otherwise, positions will be rebalanced if they are 50% above or below the target weight. Performance will be tracked on both absolute and risk adjusted metrics and compared to the performance of the S&P500, as measured by the ticker SPY.

Suitability

The portfolio is suitable for investors who are no longer in the accumulation phase of investing; people who have a fixed amount of assets and are no longer saving money each month. Retirees are an excellent example of a group for whom this 20 stock model portfolio may be suitable.

The goal of the model portfolio is to provide steady, growing dividend income from extremely stable businesses while minimizing overall volatility by maximizing gains from diversification. The overall portfolio statistics are below for this month's target weights:

Metrics

Growth Rate: Current Dividend Yield:

P/E Ratio:

7.38% 2.55%

17.77

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20 Stock Model Portfolio Target Weights

MKC, 3.00% T, 2.00% ECL, 2.00% MMM, 1.00%

GWW, 3.00% CB, 3.00% KMB, 3.00%

PM, 3.00%

ABT, 9.00% WMT, 8.00%

XOM, 4.00% BDX, 5.00%

KO, 5.00%

GIS, 8.00% HRL, 8.00%

CLX, 5.00%

MCD, 7.00%

SJM, 7.00%

PEP, 7.00%

BCR, 7.00%

Ticker ABT WMT GIS HRL MCD PEP BCR SJM CLX KO BDX XOM PM KMB CB GWW MKC T ECL MMM

Company Abbott Laboratories Wal-Mart General Mills Hormel McDonald's PepsiCo CR Bard J.M. Smucker's Clorox Coca-Cola Becton, Dickinson & Co. Exxon Philip Morris Kimberly-Clark Chubb Group W.W. Grainger, Inc. McCormick & Co. AT&T EcoLab 3M

Target Weight 9% 8% 8% 8% 7% 7% 7% 7% 5% 5% 5% 4% 3% 3% 3% 3% 3% 2% 2% 1%

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20 Stock Model Portfolio Fundamentals

Ticker ABT WMT GIS HRL MCD PEP BCR SJM CLX KO BDX XOM PM KMB CB GWW MKC T ECL MMM

Company Abbott Laboratories Wal-Mart General Mills Hormel McDonald's PepsiCo CR Bard J.M. Smucker's Clorox Coca-Cola Becton, Dickinson Exxon Philip Morris Kimberly-Clark Chubb Group W.W. Grainger, Inc. McCormick & Co. AT&T EcoLab 3M

P/E 19.10 14.28 18.00 20.46 16.40 19.15 18.23 16.61 20.74 18.71 18.57 12.43 16.06 18.09 11.75 18.52 20.11 12.85 26.09 18.81

Yield 2.10% 2.61% 3.22% 1.78% 3.44% 3.04% 0.59% 2.31% 3.31% 3.10% 1.88% 2.79% 4.60% 3.20% 2.30% 1.84% 2.23% 5.21% 1.02% 2.45%

Payout Ratio 40.06% 37.27% 57.95% 36.45% 56.38% 56.97% 10.67% 38.31% 68.76% 58.00% 34.88% 34.68% 73.81% 57.88% 27.07% 34.10% 44.94% 66.96% 26.61% 45.99%

Growth Rate 8.50% 8.21% 6.76% 6.71% 7.09% 10.64% 6.21% 6.30% 4.32% 9.04% 8.03% 6.28% 8.63% 5.32% 6.45% 10.19% 5.71% 4.02% 10.43% 6.19%

Volatility Correlation

19.84%

.4049

19.14%

.4110

17.02%

.4136

20.13%

.3583

20.14%

.4097

17.39%

.4522

21.12%

.3671

21.26%

.3806

18.40%

.3974

18.71%

.4684

20.23%

.4081

25.33%

.4756

24.05%

.4781

17.45%

.4666

27.24%

.4554

26.09%

.4357

19.18%

.4316

22.30%

.4591

23.69%

.4780

22.75%

.4750

- P/E is calculated as the current price divided by 2014 EPS as calculated by Value Line; lower is better - Yield is calculated as the current price divided by the most recent quarterly dividend x 4; higher is better - Payout ratio is the most recent quarterly dividend x 4 divided by 2014 EPS as calculated by Value Line; lower is better - Growth Rate is the lower of 10 year revenue per share or dividend per share compound growth; higher is better - Volatility is the 10 year standard deviation of dividend and split adjusted price series; lower is better - Correlation is the average correlation coefficient of a stock to the 20 stocks that make up this portfolio; lower is better

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20 Stock Model Portfolio Performance (portfolio start date 7/6/14)

Ticker

ABT WMT GIS HRL MCD PEP BCR SJM CLX KO BDX XOM PM KMB CB GWW MKC T ECL MMM Total

Company

Start

Weight

Abbott Laboratories 9.00%

Wal-Mart

8.00%

General Mills

8.00%

Hormel

8.00%

McDonald's

7.00%

PepsiCo

7.00%

CR Bard

7.00%

J.M. Smucker's

7.00%

Clorox

5.00%

Coca-Cola

5.00%

Becton, Dickinson 5.00%

Exxon

4.00%

Philip Morris

3.00%

Kimberly-Clark

3.00%

Chubb Group

3.00%

W.W. Grainger, Inc. 3.00%

McCormick & Co. 3.00%

AT&T

2.00%

EcoLab

2.00%

3M

1.00%

Total

100%

Current Weight 9.51% 8.03% 7.98% 7.65% 6.84% 7.13% 7.42% 6.81% 5.07% 4.84% 5.01% ` 4.00% 2.96% 2.91% 2.90% 2.92% 2.91% 2.06% 2.04% 1.00% 100%

Total Return 1.78% -3.33% -3.89% -7.87% -5.86% -1.95% 2.02% -6.36% -2.37% -6.76% -3.44% -3.75% -4.86% -6.46% -6.90% -6.12% -6.72% -0.64% -1.83% -3.31% -3.69%

Return Vs SPY 4.32% -0.79% -1.36% -5.33% -3.32% 0.59% 4.56% -3.83% 0.17% -4.23% -0.90% -1.21% -2.32% -3.93% -4.37% -3.58% -4.18% 1.90% 0.70% -0.78% -1.15%

*Comparisons are virtually worthless over short timeframes (like the 1 month above). 3 years and longer is a fair timeframe to judge performance.

Performance Overview

This is the first month of portfolio performance. The biggest winners in the portfolio this month were Abbott Laboratories (up 1.78%) and CR Bard (up 2.02%). The stock market as a whole was down this month. Overall, the portfolio underperformed the S&P 500 (as measured by the ETF SPY). Only 6 out of the 20 stocks outperformed the market. The low volatility portfolio is comprised of high quality dividend stocks. Historically, high quality dividend stocks have outperformed in bear markets and slightly underperformed in bull markets. If the stock market continues downward it is likely the portfolio will suffer less draw downs than the overall market based on historical results.

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Rebalancing

No stocks need to be rebalanced as of yet for those who started their portfolio in July. If you started your portfolio more recently then your stocks will have moved less and won't need rebalancing. If you plan on building your portfolio soon, use target weights not current weights.

Closing Thoughts

Thanks for reading the August edition of Sure Dividend's model portfolio. As discussed above, high quality dividend growth stocks did not perform particularly well this month due, to international and domestic fears. The long term record of dividend growth stocks is very positive, although they do not outperform every month. The Dividend Aristocrats index was down nearly 3% on the month, versus 2.3% for the overall market. High quality dividend stocks have typically outperformed in bear markets, but that was not the case this month. If the market continues downward it is likely that high quality dividend stocks will suffer smaller losses than the overall market based on historical results. As always, investing is a marathon not a sprint. The performance of any one month or quarter is insignificant compared to the impact of long-term thinking and allocating your portfolio to excellent businesses trading at fair or better prices. You can reach me at ben@ with any comments, suggestions, feedback, or reviews. Thanks, Ben Reynolds

Disclaimer

Nothing presented herein is, or is intended to constitute, specific investment advice. Nothing in this newsletter should be construed as a recommendation to follow any investment strategy or allocation. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. While Sure Dividend has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made. There is a risk of loss from an investment in securities. Past performance is not a guarantee of future performance.

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