Optimizing The Ultimate Sustainable Dividend Portfolio (USDP)

By: ispeculatornew
Date posted: 01.30.2013 (3:00 am) | Write a Comment  (2 Comments)

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37Today, I decided to take a deeper look into the USDP. I got a question a few weeks ago about the beta of the portfolio. I thought that was interesting and decided to take some time to look at it. Just in case some of you are not as familiar, beta is basically a factor that gives you an indication how a stock or portfolio reacts historically compared with the rest of the market.

A stock/portfolio with a beta of over 1 would generally increase more than the market in rising markets but also decline more in down markets. Cyclical companies, technology stocks and others would fit.

A stock/portfolio with a beta of exactly1 would increase exactly like the overall market. You’d expect the SPY ETF for example to be very close to that (according to Bloomberg, it is 0.9957)

A stock/portfolio with a beta between 0 and 1 would increase less than the overall market in rising markets but also decline less in down markets. Large cap stocks would generally be here

Finally, some stocks could have negative beta if they generally rise in falling markets and vice-versa.

I expected the USDP to be a bit under 1. Why? Dividend stocks are generally more stable than the overall market. The only thing that made me pause was the close relationship between the performance of the USDP and the S&P500 total return.

Drilling Down

Here are the top Beta’s in the USDP:

Johnson Controls Inc (JCI) : 1.38
Occidental Petroleum Corp (OXY) : 1.37
Eaton Corp (ETN) : 1.36

And the lower ones:

PepsiCo Inc/NC (PEP) : 0.56
JM Smucker Co/The (SJM) : 0.69
Hasbro Inc (HAS) : 0.77

Here are some numbers for the USDP using the shares as of Jan 14th and last night’s data.

[table “485” not found /]

I was quite surprised to see that the overall number is above 1. I guess that goes to show that not all dividend portfolio’s are not created equal. I also took a look at some of the top dividend ETF’s:

VIG 0.9953
DVY 0.9975

You could certainly say that the portfolio is more volatile than the average and that is not something I have an issue with

Sectors

I also took a look at how much exposure I have to certain sectors, you can see the following table:

[table “486” not found /]

I personally think that it’s fairly diversified. As I add more money into the portfolio, I will likely add a few more names but I want to avoid getting to a point where I struggle to keep up with news for my holdings. As I have discussed in the past, I’m also looking to add more international stocks to the portfolio to achieve greater diversification. I do feel like having 20 names is perfect for a portfolio of this size but as it gets to $30-40K, I will likely add a few more names to avoid dropping too much if one of my holdings suffers an Enron-like event.

What does your portfolio look like?

Disclaimer: I will be writing more about this but the USDP-dividend strategy is just one part of my investing strategy, I do have higher concentrations in others, especially in higher risk plays on certain technology stocks (Facebook – FB for example)

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2 Comments

  1. Comment by JOHN — January 30, 2013 @ 10:16 am

    I reviewed the list and wonder why there were no Reits or RMDs . Perhaps you could reply as to why? Thank you

  2. Comment by IS — January 30, 2013 @ 11:01 am

    @John – Good question, I might add REIT’s in the near future but for now have not included them… I’m looking to add a few names soon though so that is certainly an option

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