Wednesday, February 12, 2014

Dividend Machines trump Vanguard Dividend Appreciation ETF (VIG)

I continued my comparison of my 2011 Dividend Machine model portfolio with the Vanguard Dividend Appreciation Fund.   

As income investors, our single most important goal is to create regular income that we can depend on.  Moreover, we expect that income to increase over time.  

Not all, but most (the rule of 90/10) say ninety percent of income investors are not risk takers.   Investing for income using dividends, discount bonds and covered calls is risk enough for us.  However, we like to measure our portfolio values, especially when stock prices are going up. 

Take a look at the table below to see how the 2011 Dividend Machine Portfolio compares with VIG.  I think the comparison is impressive.   

Capital Gain Comparison of 2011 Dividend Machines & Vanguard Dividend Appreciation ETF (VIG.)

VIG has increased in value by 34.74% over the past three years; not bad! That averages about 11% a year.   The S&P 500 index as measure by the SDY index fund has increased about 9.93% per year over the same time frame.  VIG did pretty well in comparison.

2011’s Dividend Machine portfolio is even better.   This portfolio increased in value by 42.34% over the same three years.   The average is about 14% which beats even the S&P 500 index.

Income trumps capital gain for income investors.  

VIG is a low cost ETF designed to provide income from really good dividend stocks.   You will notice that every ETF’s dividend yield varies every quarter.  Using the dividend yield quoted today by Yahoo Finance your income on the invested $207,336 would be $5,419.60.   Yield on your basis is 2.614%.   Yield on your current value is 1.94%.

The stocks that make up the 2011 Dividend Machine Portfolio should pay at least $9,262.68 this year.  Yield on the same basis of $207,336 is 4.47% and yield on current value is 3.14%.  

Personally I would rather my two hundred grand pay me over nine thousand dollars a year rather than just over five thousand dollars a year.

Capital Gain & Dividend Income Table

Income investors have few choices.   I concentrate on dividend stocks, covered calls on dividend stocks, and interest from discount bonds.    The dividend stocks selected using my four simple criteria seem to keep up with the best in breed of Dividend ETF’s.   Note that the Dividend Machine Portfolio is a buy and hold portfolio and costs nothing.   VIG has a very minimal fee.

The choice is yours.