I recently updated the performance of our U.S. stock portfolio in a post for Seeking Alpha. 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 willl also offer up 26 U.S. stocks for consideration in 2023.
Here’s the link to the recent update …
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 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 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 dividend growth portfolio.
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 spin-off, 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 spin offs.
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 in this earnings season, if they’re going to continue to float the market.
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.
As you’ll see in the total return evaluation, we’re not keeping up with the S&P 500 in 2023, but we’re giving it a good go with some very generous returns. That said, the idea behind the dividend growth 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.
And the individual stock performance.
We can see that the tech and consumer discretionary stocks drove the outperformance. Abbott labs also pitched in.
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. 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 thematic plays in the electric vehicle space.
We’ve also 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.
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.
It’s easy to make money from growth stocks in retirement …
We’re selling our winners on the Sunday Reads. Microsoft has hit a few target sale prices over the last two months. The profits are now in ultra-short term treasuries earning about 5%.
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.
|UNH||UnitedHealth Group Inc*||1.48%||20.4||B-|
|BRK.B||Berkshire Hathaway*** (overweight)||0.00%||21.4||A|
|JNJ||Johnson & Johnson*||2.78%||15.9||D-|
|CSCO||Cisco Systems Inc*||2.94%||13.9||D-|
|BMY||Bristol-Myers Squibb Co*||3.52%||8.9||D-|
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.
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 given the parameters?
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