In this article, I will be constructing a portfolio of dividend-growth stocks from the underlying holdings of five-star rated large cap/ multi-cap ETFs that have outperformed the SPDR S&P 500 Trust ETF (SPY) over the last year. I used the ETF screener from Fidelity for my search and I used the following criteria:
- Morningstar Rating: 5 Stars
- Market Total Return 1-year: Greater than 6.44% [SPY 1-yr Total Return]
- Geography Objective: Domestic, Global
Five Star ETFs
I found that 19 ETFs met those criteria, and from those I eliminated any ETF that was focused on an individual sector or any ETFs that own a whole index [i.e. the Nasdaq 100]. After these eliminations, I was left with the following ten, five star rated funds that have outperformed the S&P 500 over the last year.
Description Symbol 1-Year Total Return ISHARES RUSSELL TOP 200 GROWTH ETF (IWY) 12.01% VANGUARD S&P 500 GROWTH ETF (VOOG) 10.24% FIRST TRUST NASDAQ-100 EX-TECHNOLOGY (QQXT) 9.51% FIRST TRUST US IPO INDEX FUND (FPX) 9.17% DIREXION ALL CAP INSIDER SENTIMENT SHARES (KNOW) 9.01% WISDOMTREE LARGECAP VALUE FUND (EZY) 7.92% ADVISORSHARES TRIM TABS FLOAT SHRINK ETF (TTFS) 7.84% POWERSHARES DWA MOMENTUM PORTFOLIO (PDP) 7.37% POWERSHARES S&P 500 HIGH QUALITY PORTFOLIO (SPHQ) 7.35% GUGGENHEIM S&P 500 PURE GROWTH (RPG) 6.80%
Common ETF Holdings
I went to the holdings page for each ETF and combined all the holdings into one spreadsheet. I looked for any companies that were included in at least six of the ten above ETFs. I found 11 stocks, three that were included in seven ETFs and eight that were included in six ETFs. I eliminated any stocks that had a lower total return than the S&P 500 in the last year, which left me with the seven companies for my semi-final shopping list.
Stocks in at least 7 ETFs Symbol Company 1-Year Total Return Outperformed 1- Year SPY? (NKE) Nike 41.94% Yes (LOW) Lowe's 30.29% Yes (AAPL) Apple 12.65% Yes Stocks in at least 6 ETFs Symbol Company 1-Year Total Return Outperformed 1- Year SPY? (ORLY) O'Reilly Automotive 55.71% Yes (REGN) Regeneron 46.49% Yes (ROST) Ross Stores 25.88% Yes (ABC) AmerisourceBergen 13.88% Yes (AMGN) Amgen 2.35% No (VFC) VF Corp 1.64% No (GILD) Gilead Science 0.41% No (QCOM) Qualcomm -20.38% No
Semi-Final Shopping List Candidates
Stock in at least 7 ETFs Symbol Company 1-Year Total Return Outperformed 1- Year SPY? NKE Nike 41.94% Yes LOW Lowe's 30.29% Yes AAPL Apple 12.65% Yes Stock in at least 6 ETFs Symbol Company 1-Year Total Return Outperformed 1-Year SPY? ORLY O'Reilly Automotive 55.71% Yes REGN Regeneron 46.49% Yes ROST Ross Stores 25.88% Yes ABC Amerisource Bergen 13.88% Yes
Final Shopping List Candidates
Out of the above seven stocks I eliminated Regeneron and O'Reilly Automotive because neither stock pays a dividend. I believe this bull market has peaked; therefore, it is important to look for stocks that have outperformed the S&P 500 during a correction. I looked at the performance in the following chart for each dividend-paying candidate in my semi-final shopping list in comparison to the S&P 500 from the high on May 21st 2015, to the low on August 25th 2015. Out of those five companies, there were three that outperformed the S&P 500 during this last correction are listed in the table below.
[Chart from Yahoo Finance]
LOW Lowe's NKE Nike ROST Ross Stores
Lowe's
Lowe's is a quality dividend-growth selection because they have grown the dividend an average of 19.51%/yr in the last five years and has a low payout ratio of 32.60%, which means they have plenty of room to continue increasing the dividend. In addition, Lowe's has been aggressively repurchasing stock in addition to increasing the dividend. Over the last year, Lowe's has decreased its share count by 6.33%.
Nike
Nike is a quality dividend-growth selection because they have grown the dividend an average of 14.79%/yr in the last five years and has a low payout ratio of 27.50%, which means they have plenty of room to continue increasing the dividend. In addition, Nike has been repurchasing stock in addition to increasing the dividend. Over the last year, Nike has decreased its share count by 1.00%.
Ross Stores
Ross Stores is a quality dividend-growth selection because they have grown the dividend an average of 20.90%/yr in the last five years and has a low payout ratio of 18%, which means they have plenty of room to continue increasing the dividend. In addition, Ross Stores has been repurchasing stock in addition to increasing the dividend. Over the last year, Ross Stores has decreased its share count by 2.77%.
Closing thoughts
In closing, I believe by looking at the common holdings of the highest rated ETFs, which have outperformed the broad market is a great way to find quality dividend-growth stocks. Taking it a step further, by refining my list of individual stocks down by market outperformance and outperformance during a correction, I believe I have found three quality dividend-growth stocks that are worthy of consideration and further research as possible additions to a dividend-growth portfolio.
Disclaimer: See here.
This article was written by
Brad Kenagy
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-I have been investing since the fall of 2008 and invested through one of the most difficult investing periods in history and know the importance of dividend growth and stability during those times as well as during the good times. I started writing for Seeking Alpha at the end of 2011 and I have been successful with the companies I write about, which is shown by my high TipRanks success rate (Link Below). https://www.tipranks.com/bloggers/brad-kenagy
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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