A year ago today, we launched our first iteration of the Bespoke Dividend Model Portfolio. This portfolio was in response to client requests for income producing equities in a world where fixed income yields were at or near historically low levels.
This portfolio was meant to be a diversified list of mid to large cap equities across the spectrum of market sectors. While the names included are not necessarily the highest payers, they had above average payouts relative to other dividend payers in their sector, and a history of consistently not only maintaining, but also increasing, their dividends. We also looked to only include stocks where the percentage of earnings paid out in the form of dividends has typically been low or at a reasonable level (less than two-thirds of earnings). Finally, in an attempt to avoid stocks that had high yields because of falling stock prices, we also incorporated a filter to weed out stocks that have been poor performers relative to the overall market and/or their respective sectors.
The Bespoke Dividend Model Portfolio was never intended to act as a replacement for an asset allocation to fixed income. Instead, it is geared towards less active investors looking to generate income from their holdings with minimal turnover. As is always the case with any stocks we highlight, we do not recommend that investors go out and blindly buy the stocks included in our Dividend Income Model Portfolio. Instead, we suggest that you research each name accordingly to make sure it fits in with your overall investment objectives.
Over the last year, the Bespoke Dividend Model Portfolio has had a total return of 8.34%, which is actually slightly behind the 8.73% total return of the S&P 500. While the portfolio has lagged, when you consider how dividend stocks have performed over the last year, the 8.34% is actually quite good. The chart below shows a decile (10 groups of 50 stocks each) breakdown of S&P 500 stock performance based on dividend yields. As shown, the only decile of stocks that has seen a negative total return over the last year is the decile of stocks with the highest yields. So even after taking into account their high yields, they are still down close to 10% in the last year! It was this type of scenario we had in mind when we included the relative strength component to the overall criteria.
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