January 30, 2013 at 04:00 AM EST
Optimizing The Ultimate Sustainable Dividend Portfolio (USDP)
Today, 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 [...]

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.

TickerNameShares As Of Jan 14PriceValueEPSPE RatioPE Next YearSales GrowthBeta
OMCOmnicom Group Inc2654.391414.143.383.3813.674816510.603946581.18
MSFTMicrosoft Corp5028.011400.52.022.028.8182973325.4044007260.92
JCIJohnson Controls Inc3631.111119.961.81.89.9788823912.7477775331.38
PEPPepsiCo Inc/NC1772.941239.984.084.0816.4848003614.983229020.56
ETNEaton Corp2657.541496.043.983.9812.8768361617.017863651.36
DOVDover Corp2069.6513934.594.5911.630821341.9395759071.25
ITWIllinois Tool Works Inc2464.141539.365.315.3113.074706730.7725879671.14
XLNXXilinx Inc3336.651209.452.012.0118.70030581-5.4320315521.16
SJMJM Smucker Co/The1588.651329.754.064.0615.6940760414.506346480.69
BLKBlackRock Inc7238.011666.0714.0314.0313.570405185.0104614031.17
TROWT Rowe Price Group Inc2171.611503.813.473.4716.56869606#N/A N/A1.34
OXYOccidental Petroleum Corp1385.111106.438.168.1611.0730263225.697033341.37
COPConocoPhillips2161.661294.869.049.0410.4800817231.354977470.99
XOMExxon Mobil Corp1591.761376.48.438.4311.4603134826.918595461
ADIAnalog Devices Inc3144.151368.652.182.1816.97728148-9.7610011631.13
HASHasbro Inc2937.221079.382.882.8812.819444447.0818740180.77
MATMattel Inc3937.261453.142.22.213.19657516.9984349910.82
INTCIntel Corp4921.281042.722.22.29.651535993-1.2185410841.01
AFLAflac2553.351333.754.214.217.9852653746.9409608331.33
BAXBaxter International2067.3513474.224.2212.941628262.1377672210.9
Cash638.01

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:

Industry%
Communications5.17%
Consumer, Cyclical13.35%
Consumer, Non-cyclical14.32%
Energy13.81%
Financial16.47%
Industrial16.19%
Technology18.36%
Grand Total97.67%

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)

Stock Market XML and JSON Data API provided by FinancialContent Services, Inc.
Nasdaq quotes delayed at least 15 minutes, all others at least 20 minutes.
Markets are closed on certain holidays. Stock Market Holiday List
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.
Press Release Service provided by PRConnect.
Stock quotes supplied by Six Financial
Postage Rates Bots go here