MDLZ - Building The Dividend Growth Portfolio In 2023

2023-07-26 22:03:49 ET

Summary

• My U.S. dividend growth portfolio, constructed in 2015, has outperformed the market by over 2% annually.
• The portfolio was designed to be resilient in a major stock market correction, focusing on dividend achievers with at least 10 years of dividend growth.
• For building a similar portfolio in 2023, I considered valuation and growth, leaning towards larger cap or mega-cap stocks, and factored in retirement income needs.

I have had great success with my U.S. dividend growth portfolio that was constructed in early 2015. I bought (skimmed) 15 of the largest cap dividend achievers. Those dividend achievers were added to 3 stock picks that were already held. The portfolio has outperformed the market by a considerable amount. Readers on Seeking Alpha and on my blog, Cut The Crap Investing, asked how I would build the dividend growth portfolio in 2023.

Here's an update post - our dividend growth portfolio continues to outpace the S&P 500.

From that post you'll see that the mix has outperformed the S&P 500 ( IVV ) by over 2% annual. My returns are even greater as I did not rebalance, I let the winners run.

And while the portfolio was not constructed to beat the market, it is a welcome surprise. I was looking to build a more stable mix of stocks that would be more resilient in a major stock market correction. Of course, major corrections are usually accompanied by recessions.

The market beat is a testament to the quality skew of the portfolio. Dividend achievers require at least a record of 10 years of dividend growth (each year). The index in 2015 also applied financial health screens. I bought the largest cap holdings in the index that can potentially deliver wider moats and greater financial stability.

But that was then and this is now. Many of the stocks have had an incredible run, and there is potentially little value in many of the holdings.

Building the U.S. dividend growth portfolio in 2023

The dividend achievers ( VIG ) index is no longer used for the Vanguard ETF. It is now the dividend appreciation index and no longer applies a financial health screen.

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 my 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. I hold Apple ( AAPL ) but would not buy it today. Microsoft ( MSFT ) is in one of my wife's accounts, but again I would not buy it 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 are trimming the stock to create retirement income.

To create this list I considered 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 skewed to the larger cap or mega cap universe.

Here's the list of stocks with yield, valuation and growth metrics.

The valuation is a forward PE ratio as found on Seeking Alpha.

The growth rating is from Seeking Alpha quant modelling .

Building the portfolio for retirement

Of course there is no one size fits all portfolio. We all have different goals and risk tolerance levels. The portfolio should also fit with the greater financial plan.

In retirement, playing defense is important. So you might shade to (overweight) the defensive stocks and sectors such as healthcare and consumer staples and utilities.

In this post you can see that the defensive sectors were greatly superior to a traditional balanced portfolio in a retirement funding scenario through the financial crisis.

I also like the idea of an all-weather portfolio for retirement . The all-weather portfolio will include dedicated inflation fighters. And that will typically mean some exposure to oil and gas stocks. Those are not included on the list, but you might consider that exposure in retirement or for long term growth if you are bullish on the sector. I am.

The ridiculous growth from Canadian oil and gas stocks .

Growth is important

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. Focusing on yield is one of the greatest mistakes.

Given that, you might stretch on the valuation "thing" and select more growth oriented stocks. Timing the high growth area is tricky.

You might even consider growth-oriented ETFs such as ( QQQ ) and ( VUG ).

Those who are worried about the valuation levels can look to value ETFs and the equal-weight S&P 500 ( RSP ). And as per above, I like VYM and SCHD.

We should keep in mind that growth is important for retirees as well. While I like the idea of playing defense, it might be the mega growth stocks that pitch in big time in the attempt to have a very long and fruitful retirement.

Our growth-oriented tech, consumer discretionary and healthcare stocks have been treating us very well.

Even a 10% weighting to growth might be prudent and reasonable.

What's your take?

Seeking Alpha can be a wonderful crowd-sourcing site. I often learn more from the comment sections.

Have a look at the list and offer your thoughts in the comment section. What do you like, not like, and what names would you add?

Thanks for reading. Please hit the like button if you liked this post.

And remember, this is not advice. These are names for consideration.

For further details see: