{"id":29431,"date":"2012-05-02T15:00:25","date_gmt":"2012-05-02T19:00:25","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/05\/sizemore-capital-allocation-change-dividend-appreciation\/"},"modified":"2012-05-02T15:00:25","modified_gmt":"2012-05-02T19:00:25","slug":"sizemore-capital-allocation-change-dividend-appreciation","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/05\/02\/sizemore-capital-allocation-change-dividend-appreciation\/","title":{"rendered":"Sizemore Capital Allocation Change: Dividend Appreciation"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

Sizemore Capital is making a strategic allocation shift for all ETF portfolios with U.S. large cap exposure.\u00a0 This affects the Tactical ETF Portfolio<\/a> and the Strategic Growth Allocation<\/a>.<\/p>\n

To be consistent with Sizemore Capital\u2019s focus on dividend growth, we are eliminating our long-term positions in the iShares S&P 500 Index (NYSE:$<\/span>IVV<\/a>) <\/strong>and replacing them with the Vanguard Dividend Appreciation ETF (NYSE:$<\/span>VIG<\/a>).\u00a0 <\/strong><\/p>\n

The Vanguard Dividend Appreciation ETF <\/strong>tracks the performance of the Dividend Achievers Select Index, which consists of U.S. stocks that have long history of raising their dividends.\u00a0 Every stock in the portfolio must have raised its dividend for a minimum of 10 consecutive years.<\/strong><\/p>\n

Much of our research and investment in recent years has focused on income and income growth, and for good reason.\u00a0 Capital gains can be ephemeral, and the only way that investors can realize their returns is by selling shares.\u00a0 Rather than enjoying the milk in the form of dividends, you end up slaughtering the cow.<\/strong> And continuing this analogy, once the cow is gone investors are left with nothing to eat.<\/p>\n

I should note that both the Tactical ETF Portfolio and Strategic Growth Allocation are long-term growth models with current income as only a secondary objective. But even for growth-oriented investors with years or decades until retirement, a dividend-growth strategy makes sense, and the Vanguard Dividend Appreciation ETF is very consistent with a growth strategy.<\/p>\n

Remember, the Vanguard Dividend Appreciation ETF does not<\/em> have current income as its primary objective.\u00a0 \u00a0With a current dividend yield of 2.0%, it doesn\u2019t pay significantly more than the S&P 500\u2019s 1.9%.<\/p>\n

Its focus on dividends is instead a focus on quality.<\/strong>\u00a0 When a company raises its dividend, it sends a powerful message that management sees better days ahead. The discipline required to consistently pay a dividend also has a way of discouraging management from wasting shareholder money on quixotic empire building or on overpriced mergers that fail to deliver value.\u00a0 It forces management to be efficient.\u00a0 And importantly, it also helps to keep management honest.\u00a0 Paper earnings can be manipulated, but dividends have to be paid in cold, hard cash.\u00a0 Dividends don\u2019t lie.<\/p>\n

My good friend Albert Meyer of Bastiat Capital refers to his own strategy as \u201can index fund, but without all the rubbish.\u201d<\/strong>\u00a0 (It sounds classic in his professorial South African accent.)<\/p>\n

This is how I like to think of the Vanguard Dividend Appreciation ETF.\u00a0 With a portfolio turnover of only 14% per year and a management fee of only 0.13%, VIG enjoys the best aspects of an index fund\u2014tax and fee efficiency\u2014but without the baggage of the lower-quality companies that bog down most indices.<\/p>\n

The Strategic Growth Allocation currently already has a position in the iShares Dow Jones Select Dividend ETF (NYSE:$<\/span>DVY<\/a>)<\/strong>. It is fair to ask whether an additional position in the Vanguard Dividend Appreciation ETF is redundant.\u00a0 But to this question, I would give an emphatic \u201cno.\u201d<\/p>\n

DVY is primarily an income-focused ETF with a heavy allocation the utilities sector.\u00a0 VIG is a growth-focused ETF with greater exposure to the consumer and industrial sectors.\u00a0 Though they both have \u201cdividend\u201d in their titles, their strategies are vastly different (see \u201cDividend ETFs for Growth and Income<\/a>\u201d).<\/p>\n

Disclosures: IVV, VIG and DVY are positions in Sizemore Capital accounts.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter Sizemore Capital is making a strategic allocation shift for all ETF portfolios with U.S. large cap exposure.\u00a0 This affects the Tactical ETF Portfolio and the Strategic Growth Allocation. To be consistent with Sizemore Capital\u2019s focus on dividend growth, we are eliminating our long-term positions in the iShares S&P 500 Index (NYSE:$IVV) … <\/p>\n

Continue reading “Sizemore Capital Allocation Change: Dividend Appreciation”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-29431","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/29431","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=29431"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/29431\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=29431"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=29431"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=29431"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}