I recently updated the performance of our U.S. stock portfolio on the Sunday Reads. You’ll find those details below, updated to the end of May 2024. We continue to outpace the returns of the S&P 500. I was also asked how I would build the U.S. stock portfolio in 2023, given the valuation issues for the U.S. market. In this post for Cut The Crap Investing I will post those details. I offered up 26 U.S. stocks for consideration in 2023. The conviction picks provided some wonderful outperformance.
In early 2015 I began an ‘experiment’ on behalf of investors on Seeking Alpha. I purchased 15 of the largest cap U.S. dividend achievers. Those 15 companies were added to 3 stock picks that were already held. The dividend achievers offered a quality skew as companies had to have increased their dividends each year for at least 10 years. The index at the time also applied a financial health screen. I skimmed (bought) 15 of the largest cap names, that can help find greater moats and added financial stability. Our dividend growth portfolio continues to outpace the S&P 500.
The U.S. stocks are held in our (in my RRSP accounts and my wife’s) RRSP accounts. And keep in mind, this is not advice. Consider this post and the stocks as ideas for consideration.
The 15 dividend achievers
The 15 companies that I bought are 3M (MMM), PepsiCo (PEP), CVS Health Corporation (CVS), Walmart (WMT), Johnson & Johnson (JNJ), Qualcomm (QCOM), United Technologies (UTX), Lowe’s (LOW), Walgreens Boots Alliance (WBA), Medtronic (MDT), Nike (NKE), Abbott Labs (ABT), Colgate-Palmolive (CL), Texas Instruments (TXN) and Microsoft (MSFT).
I also have 3 U.S. stock picks by way of Apple (AAPL), Berkshire Hathaway (BRK.B) and BlackRock (BLK). And of course, Berkshire does not pay a dividend, but I see it as an essential holding for a retiree or near-retiree. It belongs in our retirement portfolio. Portfolio success in retirement comes down to the total return and the risk level. Surprisingly, the dividends are irrelevant except for tax purposes (where that may apply).
United Technologies merged with Raytheon (RTX) and then spun off Carrier Global Corporation (CARR) and Otis Worldwide (OTIS). We continue to hold all three and they have been wonderful additions to the portfolio. In fact, from the time of the spinoff, the 3 stocks have greatly outperformed the market (IVV) and the dividend achievers. Given that the United Technology stocks are not available for evaluation from 2015, I have run the performance update from 2015 with the remaining 14 dividend achievers, and the 3 picks.
I will then also address the spinoffs.
Keeping up with the markets in 2023
It is not easy to keep up with the U.S. market in 2023. Several growth stocks, deemed the Magnificent 7 are driving the market. If you don’t have tech (and AI exposure), you are likely lagging the market returns.
Given that we own Apple and Microsoft we enjoy some exposure to this ‘magnificent’ group. Of course the MAG 7 gang is terribly expensive selling at a collective 40 times earnings. They will have to come up big time every earnings season, if they’re going to continue to float the market.
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Given that I am semi-retired and my wife is in the retirement risk zone, we will take the opportunity to sell into the rally to create retirement income. If someone wants to pay us more for less current earnings per share, step right up. It’s an easy game in retirement, or as we prepare for retirement.
As you’ll see in the total return evaluation, we did not keep up with the S&P 500 in 2023, but we gave it a good go with some very generous returns. That said, the idea behind the U.S. stock portfolio was not to beat the S&P 500, but to provide greater protection during recessions and severe bear markets. When the world changed in 2020, the portfolio began to pull away from the S&P 500 – by design.
I started with an overweight to the 3 picks. I let the winners run – no rebalancing.
The performance update to the end of May 2024
We can see that the tech and consumer discretionary stocks (Lowe’s) drove the outperformance. The S&P 500 delivered 12.42% for the period.
The performance above includes annual rebalancing. I have let the stocks run. That has increased the outperformance by 1.5% annual. Our beat is quite significant.
The United Technology spin offs
The United technology spin offs are available from 2021. Given the weighting in the portfolio, they have added modestly to the outperformance.
Here’s the wonderful CAGR performance of the spin offs from 2021.
- Carrier 13.26%
- Raytheon 16.13%
- OTIS 13.18%
They all trounced the market that delivered 8.55% annual for the period. I am more than happy that I stuck with all 3 companies. Given that, the spinoffs would add modestly to the outperformance for the full period.
They also fill a portfolio hole with industrials and a defense manufacturer.
While we hold the portfolio for retirement and the potential of a defensive posture, we can see that the dividend growth and high quality approach might be appropriate for those in the accumulation stage.
The dividend growth portfolio for retirement
The above U.S. stock portfolio is just one part of the total portfolio, though it plays an important role. On the equity front, we are weighted at about 55% U.S. stocks and 45% Canadian stocks. We have allocations to bonds, cash, gold and bitcoin in the mix. There are also some successful growth thematic plays in my TFSA – Uranium (HURA), semi conductors (CHPS), more oil stocks and bitcoin. My wife’s TFSA is quite conservative as some of the funds could be used in the next 3-5 years.
We’ve had great success with our Canadian oil and gas stocks from 2021.
For retirement I like the idea of an all-weather portfolio. We can strategically arrange types of stocks for economic environments. We can overweight consumer staples, healthcare and utilities stocks to add a more defensive posture. They can work in concert with bonds, cash, gold and inflation-fighting assets. And using more defensive stocks might give you the opportunity to lighten up on the bond exposure.
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But as our portfolio shows, it’s a good idea to keep some growth in the mix. An accumulator might concentrate more on the growth prospects while a retiree might choose to play defense.
Selling some winning stocks for retirement
It’s easy to make money from growth stocks for retirement funding. And remember, we enter the retirement risk zone several years before retirement.
We’re selling our winners on the Sunday Reads. Microsoft has hit a few target sale prices over the last two years. The profits are now in ultra-short term treasuries earning about 5%. Nike and Texas Instruments were also trimmed in my wife’s account, over the last few years. Nike was a top performer. The valuation made no sense. The markets have been hitting that stock hard from early 2022. Texas Instruments continues to perform well. My wife’s RRSP accounts are in the area of 65% equities to 35% bonds and cash. Her retirement start date is 3 years away.
Of course, as one approaches retirement we don’t mind selling shares only to watch the stock continue on to make new highs. There’s no seller’s remorse. We can book more profits at even higher levels. When a stock like Nike falls on hard times – no worries. Some profits are already booked. We can wait for the potential of another price surge to do some more trimming.
Keep in mind the above is not advice, but ideas for consideration. Be sure to know your risk tolerance level, tax considerations and how investments fit within the greater financial and life plan.
Building the U.S. portfolio in 2023
When building the dividend growth portfolio in 2023 I looked to Schwab’s (SCHD) that includes dividend growth and financial screens. I also looked to Vanguard’s (VYM) that offers greater value and a nice sector arrangement. I also considered our current holdings. And yes, I considered VIG holdings.
Of course, I had to take a pass on many of the best companies on the planet due to valuations. We hold Apple and Microsoft and Nike, but again I would not buy them today. But we’re happy to own and hold. Given that I am semi-retired and my wife will retire within 3-4 years, we will trim the stocks over time to create retirement income.
To create this list I considered quality, valuation and growth. We want to at least buy at reasonable valuations and see at least reasonable growth prospects. I have double asterisked ** stocks that appear to be superior on the valuation plus growth combination.
And once again, I have mostly skewed to the larger cap or mega cap universe.
Here’s the list of stocks with yield, valuation and growth metrics, updated the week ending July 28, 2023.
The valuation is a forward PE ratio as found on Seeking Alpha.
The growth rating is from Seeking Alpha quant modelling.
| Symbol | Name | Yield | PE/Ratio | Growth |
| UNH | UnitedHealth Group Inc* | 1.48% | 20.4 | B- |
| WFC | Wells Fargo** | 2.61% | 9.5 | A- |
| BRK.B | Berkshire Hathaway*** (overweight) | 0.00% | 21.4 | A |
| HSBC | HSBC Holdings** | 5.08% | 6.9 | A+ |
| BLK | BlackRock | 2.64% | 21.2 | C+ |
| JNJ | Johnson & Johnson* | 2.78% | 15.9 | D- |
| K | Kellogg* | 3.48% | 16.5 | D- |
| LOW | Lowe’s** | 1.88% | 17.5 | B- |
| AVGO | Broadcom Inc* | 2.04% | 21.4 | B- |
| KR | Kroger** | 2.38% | 10.8 | C- |
| CSCO | Cisco Systems Inc* | 2.94% | 13.9 | D- |
| MDT | Medtronic* | 3.11% | 17.6 | D |
| AMGN | Amgen** | 3.62% | 13.3 | B+ |
| CMCSA | Comcast Corp** | 2.68% | 11.9 | C- |
| BMY | Bristol-Myers Squibb Co* | 3.52% | 8.9 | D- |
| QCOM | Qualcomm Inc* | 2.58% | 15.0 | D- |
| DKS | Dick’s Sporting** | 3.05% | 9.8 | B- |
| GIS | General Mills* | 3.06% | 17.1 | D+ |
| RTX | Raytheon* | 2.43% | 19.3 | C |
| CARR | Carrier* | 1.38% | 20.9 | C |
| CAT | Caterpillar** | 2.00% | 14.4 | C+ |
| CB | Chubb Limited** | 1.72% | 11.1 | B- |
| MDLZ | Mondelez* | 2.07% | 23.3 | C+ |
| TSM | Taiwan Semi | 1.80% | 20.2 | D- |
| TTDKY | TDK Corporation** | 2.01% | 12.5 | C+ |
| JNPR | Juniper Networks | 3.00% | 12.5 | B |
Those 12 conviction picks (sub or sign up required) greatly outperformed the market to then end of February 2024. Not too bad, for avoiding the Magnificent 7. I am working on updating that post on Seeking Alpha.
Go for growth in accumulation
If you are in the accumulation stage, you should focus on growth while investing within your risk tolerance level. It’s that simple. Create the largest portfolio value possible as more money buys and creates more income in retirement. Given that, you might stretch on the valuation “thing” and select more growth oriented stocks.
More money is more better.
– Dale
Once again, retirees might focus on more defensive sectors while recognizing the importance of maintaining a growth basket.
Please do your own additional research. Understand all tax implications. And know how a stock portfolio fits within your greater financial plan.
Thanks for reading. We’ll see you in the comment section. What would you add to this list of stocks given the parameters?
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