In the final of our three-part series on our newly released portfolios, this week we cover the Income Portfolio. As mentioned last week, if you are looking for a portfolio that tracks fully franked dividend stocks, then this is the one for you to consider. Read on below to find out this portfolio’s phenomenal Annualised Rate of Return (ARR)!
The Income Portfolio is a five share portfolio designed to find stocks paying dividends that are fully franked. In addition, the Income Portfolio views capital growth as a necessary requirement, since capital growth in turn provides purchasing power to acquire further fully franked dividend paying stocks.
To find this portfolio, click on the Portfolios tab on the main toolbar and locate the Income Portfolio on the left-hand side. Let’s check the track record of this portfolio by clicking on the Portfolio Performance button on the bottom left of the Portfolios screen. This will open the Portfolio Performance window and list all the portfolios as found in the Portfolios tab (you can filter out any of the non VectorVest portfolios per the dropdown menu at the top left of the Portfolio Performance window where you can choose from View All, VectorVest Only and Personal Only). The performance window notes the Income Portfolio has returned over 45% ARR! Notice the Max Drawdown at 15.46% (as of 2 January 2018). Maximum Draw Down is the most a portfolio has lost from a peak to trough cycle before any new peak took place. This portfolio goes just over 6 years. Not bad at all! Close out of this window by clicking on the “X” in the upper right corner.
To check out the exact settings for this portfolio, ensure you are in the Portfolios tab with no reports open and click on the Details button near the top right of the page. This will open a new window and list all the settings applied. This portfolio holds up to 5 stocks in total and applies a stop-loss of Relative Timing (RT) < 1.05. As RT is looking at the short-term price momentum of stocks on a scale of 0.00 to 2.00, we are weeding out any stocks with slowing momentum. Notice the search applied: Dividend Bargains/FC. This search can be found in the UniSearch Tab under the folder: Searches – Franking Credits. The search is looking for dividends of at least 2% dividend yield that are fully franked (both Interim Franking Credits and Final Franking Credits). Close out of the current window by selecting the X in the top right corner.
Some of the recent trades in the portfolio have been impressive with Beach Energy (BPT.AX), IMF Bentham (IMF.AX) and New Hope Corp (NHC.AX) all up over 50% as of 2 January 2018. In putting this portfolio together, consideration of income was not confined to dividends and franking credits alone. This portfolio takes into account capital growth as a source of income too. One can always sell some of the share profits back to the market and pocket the profits! We have found over the years that buying and holding onto high dividend paying stocks does not always equate to good returns. Sure, the dividend and franking credits are acceptable, but income at all costs can often result in capital erosion that more than offsets the gains from the dividends and franking credits.
So how do the dividend stocks stack up? One of the best ways to see what took place is to look at the trade history. Click on Reports (just above the Income portfolio graph) and select View Trade History. This is where you can see the transaction record over the years. We have just released this portfolio, so it is the track record to date. A positive track record historically is no guarantee of future performance, but certainly one would want to see a record of accomplishment in order to consider such a portfolio. This portfolio over the last six years has averaged around 18 trades a year.
Historically, we can see every trade opened and then closed. Many of the positions opened will not have resulted in a dividend paid since a lot of these stocks were closed out before the record date (as per the company’s share register in order to receive a dividend) or held long enough to be eligible for franking credits (as a general rule, 45 days excluding purchase and sales date and 90 days for preference shares excluding purchase date and sales date). However, as the note to this portfolio states, “This portfolio may at times forgo some dividends and franking credits in return for significant capital gains when certain risk management rules are met!” Where a trade is held onto long enough, dividends, along with franking credits will be realised. In many cases, it may simply be the dividend realised and not the franking credits.
This year, we will be researching a portfolio with minimal trades that finds high dividend paying stocks that are fully franked. The key will be to ensure that capital growth or capital preservation is achieved. We will keep you posted!
Please note: The portfolio returns are exclusive of franking credits and dividends.
Written by: Robert and Russell Markham
To take out a trial to VectorVest to check this portfolio out in our Portfolios tab – CLICK HERE