Sunday, July 9

Week 314 - High-quality Dividend Achievers That Beat The S&P 500 For 25 Years With Less Risk

Situation: See last week’s blog (Week 314 - High-quality Dividend Achievers That Beat The S&P 500 For 25 Years With Less Risk). 

To “buy-and-hold” a stock, we want the underlying company to have a long record of stable price growth that outperforms the lowest-cost S&P 500 Index fund (VFINX). Otherwise, we would simply invest in VFINX and forget about picking stocks. We would also like those companies to have had less stock price volatility than VFINX over a long period of time. The necessary statistical data is found at the BMW Method website. 

Mission: For this week’s blog, we’ll look at how publicly-traded stocks have performed over 25 year holding periods. 

Execution: see Table.

Administration: We exclude companies that do not have high ratings from S&P on their stocks and bonds. We also exclude companies that S&P hasn’t designated as Dividend Achievers. “Less risk” is defined as a statistically lower risk of loss at 2 standard deviations below trendline than that for the S&P 500 Index (see Column M in the Table, where red highlights denote more risk).

Bottom Line: After analysis, we are not surprised to find that 5 of the 8 companies also starred in last week’s blog, where we used a 35 year holding period as opposed to this week’s 25 year period. The newcomers are Procter & Gamble (PG), Genuine Parts (GPC) and PepsiCo (PEP). Six of the 8 companies represent “defensive” industries, while in last week’s blog, 7 of the 10 companies were from those industries (consumer staples, utilities, healthcare, and communication services). Now we know why investors don’t overweight their portfolios with relatively safe (i.e., defensive) stocks, i.e., the ones that have a better chance of outperforming the S&P 500 Index simply because they rarely fall in price. Defensive stocks are boring! Yes, growth stocks are more likely to zip upward in price. But that comes with a statistically equal chance of zipping downward. Most of us pick stocks because we like to see that upward zip once in awhile, not because we hew closely to a disciplined approach for beating the S&P 500 long-term. 

Risk Rating: 6 (where 10-Yr Treasury Notes = 1, S&P 500 Index = 5, and gold = 10)

Full Disclosure: I dollar-average into PG and own shares of GIS and MKC.

Post questions and comments in the box below or send email to:

No comments:

Post a Comment

Thanks for visiting our blog! Leave comments and feedback here: