High-Dividend Blue Chip
Stock Portfolio Overview
(Additional
Performance Data)
This alternative stock portfolio
is designed for those seeking income and growth from blue
chip stocks. To be considered a blue chip stock, a company
must be financially sound while demonstrating an ability to
pay dividends in both good and bad times.
Specifically, to be considered
for inclusion into this portfolio, a company must meet at
least 5 of the 6 following qualifications:
- A minimum of 25 years of uninterrupted
dividends
- Dividend increases 5 times or more in
the last 12 years
- Earnings growth in at least 7 of the
last 12 years
- S&P Quality ranking of A- or higher
- A minimum of 80 institutional investors
- A minimum of 5 million shares outstanding
Additionally, the company
must have a low dispersion of earnings estimates. Studies
have shown that companies with a history of having analyst
earnings estimates that are closely grouped together (low
dispersion) accompanied by a high degree of accuracy outperformed
the S&P 500 by up to eighteen percentage points per year.
The reason given for this: companies that are performing well
and have a bright future are more likely to give accurate
and complete information to analysts. The result is analyst
earnings estimates are similar and more accurate than normal.
On the other hand, companies
having operational difficulties tend to be less open with
information, which leads to a wider spread in analyst estimates.
The wider spread causes optimists to focus on the extreme
estimates on the high end, and they bid up the price of the
stock. Pessimists will focus on the extreme lower estimates,
but are less likely to short the stock (and therefore balance
out the optimists) because of regulatory and psychological
constraints.
***
Compared to our High-Yield
Value Stock Portfolio, this portfolio will likely have:
- Less volatility
- Lower turnover
- Slightly lower returns
Cautious stock investors will
likely want to have a portfolio comprised of both large and
small stocks. Extremely cautious investors may wish to opt
only for larger stocks and mutual funds that invest only in
large companies. Aggressive investors may want to invest mostly
in small stocks, realizing that to benefit from the higher
growth potential of these smaller stocks, they have to take
on additional risk.
As with our Primary Stock Portfolio,
an investor will ideally invest an equal amount into each
of these stocks. We recommend investing at least
$100 into each stock. If you use a discount
broker (and some occasionally try a zero-commission business
model), your annual commissions could be less than what many
full-service brokers charge for one trade.
For those that can't afford
to invest in all of the stocks, we recommend investing in
the stocks that have most recently been recommended or starting
with one of the mutual fund portfolios (available
here).
Remember, the more stocks
and industries you invest in, the greater your diversification
and safety. So beware having your whole portfolio invested
in only a handful of stocks. However, if your goal is to beat
the market, you have to be careful not to take diversification
too far. If you took diversification to the extreme, you would
buy all of the stocks available in the stock markets. You
would then obviously achieve returns that would match the
market, thereby negating the goal of beating the market. We
attempt to design this portfolio to have enough stocks and
industries to provide the optimum amount of diversification
to earn high returns while providing adequate safety for long-term
investors.
As always, keep in mind that
investing in individual stocks or mutual funds involves risk.
Past performance is never a guarantee of future performance.
Performance
Since Inception1 |
|
Total
Return |
| High-Dividend Blue
Chip Stock Portfolio: |
221.9% |
| S&P 500: |
35.7% |
|
Average Annual
Return |
| High-Dividend Blue Chip Stock Portfolio: |
14.5% |
| S&P 500: |
3.6% |
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