Dividend Stars Portfolio Beats Benchmark in First Quarter
Since being launched Nov. 10, the Dividend Stars portfolio has returned 12.4%, versus 10.7% for the benchmark, an outperformance of 174 basis points. For the first quarter, the Dividend Stars portfolio returned 8.5%, exceeding the benchmark performance by 1.3%. The current portfolio offers an average dividend yield of 2.7% versus 3% for the benchmark. (The S&P Dividend Yield is currently at 1.97%.)Since the start of 2012, investors have turned away from defensive sectors (such as Utilities, Telecom and Healthcare) and turned to cyclical sectors such as Financials and Technology. This has led to an outperformance for lower-quality stocks, as companies rated C&D on the quality scale (according to Merrill Lynch -- see chart below) have significantly outperformed, returning 22.5% in the first quarter.
High-dividend-yielding stocks have underperformed, while companies with strong dividend growth outperformed in the first quarter. Investors have opted to assume more risk, as evidenced by the strong performance of Low Price to Book and High Beta factors in the table below.
With low quality, high beta and cyclical companies leading the way for the year thus far, I'm quite pleased with the performance of the portfolio. I continue to seek companies that offer an above-average level of income return, but also have the potential for significant capital appreciation.