Today we will look back on the income portfolio for 2013, but first I would suggest you review yesterday’s “Year in Review – Part 1” introduction. In addition to those comments on evaluating performance, income stocks deserve some particular discussion. Not everyone is going to make the 30% advance of the S&P500 for the reason that not everyone has the same investment horizon. Retirees, for example, are more concerned with preservation of capital and income vs. stocks with higher capital gains’ potential that carry greater market risk; investments more suitable to those that have a lot more years to recover from market gyrations. Therefore, the income stocks in thebuttonwoodproject portfolio need to be gauged against other fixed income-oriented havens such as Treasuries, bonds, savings accounts, etc. Keeping this in mind, let’s look back on the list starting with . . .
. . . DuPont & Co. that moved ahead on the year with a gain of nearly 41%, plus an average dividend yield of 2.8%. The one-time chemical giant is morphing into agricultural and specialty products with higher margins and growth potential and remains a solid income holding. The UBS ETRACS Alerian ETF that tracks energy storage and pipeline stocks moved ahead nearly 14% while providing income investors with a 4.8% payout and should remain a core holding. Although Intel Corp. lagged the overall market, I was generally pleased with its 21% gain on the year along with a 3.5% dividend rate and see better things ahead for 2014 as it gains traction in mobile and tablet devices. The iShares Global Telecom ETF gained over 16% in market value with a distribution yield of about 3.7% throughout the year, so not too shabby. While Kimberly-Clark was added in March of last year, it had a 12% gain since that time and provided investors with a 3.1% dividend return, as well. Shedding its healthcare business this year, should unlock some added value for the shares and, while not expected to be an “outperformer”, KMB should do well in the coming twelve months, growing its dividend along with modest capital appreciation. McDonald’s did not do as well last year as it did in 2012, as the Dow Jones Industrials top stock and advanced a modest 6.5% due to less than robust same-store sales and pressures in emerging markets. But the shares did not lose money and provided a 3.4% dividend yield for a total return of about 10%. Rogers Communications, on the other hand, had a negative year as threats to its oligopoly in the Canadian wireless business took a hit in mid-summer with its stock falling to a low of $38.32 from a high of $52.00 in mid-April. The shares have bounced back to its present $44.46 level and RCI was able to support its regular $1.74 dividend yielding 3.7%, slightly offsetting the value in its price decline of 3.12%. Barring more foreign threats, the shares remain a “hold” for recovery. Royal Bank of Canada that joined the category in late March had a decent nine months for such a large company in a difficult operating environment and the shares moved ahead over that time by 10% and investors enjoyed a robust 3.7% average yield, as well. The company raised its dividend for the fourth quarter and more hikes are likely down the road. The Select SPDR Utilities ETF, which tracks the index of 32 diversified utility and power companies, took it on the chin as the market reacted to the ongoing Federal Reserve bond-buying reduction issue and the shares were ahead by a modest 4.8% on the year, but provided an additional 3.85% yield, so not bad for a prosaic income candidate such as utilities. Verizon Communications was ahead by nearly 10% last year and its 4.4% dividend is safe and grows modestly from year-to-year, so a better than 14.4% total return. With its acquisition of the remaining portion of the wireless business from Vodafone that it did not own, it will be interesting to see how VZ progresses in 2014 against its lower-priced rivals such as Sprint and T-Mobile. Consolidated Edison, which was eliminated from the portfolio the other day, had a negative year price-wise – off 5.5% – but managed to partly offset the loss with a 4.6% yield for the year. You can’t win them all, and we moved on. Finally, HJ Heinz was taken out by Berkshire Hathaway and 3G Capital last year and was removed from the list on March 8, but provided investors with a 46.6% gain while a member of the portfolio and a 3.5% annual dividend. And JPMorgan Chase, which held a dual place in the income and aggressive lists, was taken out of this portfolio in mid-March and replaced with the more conservative Royal Bank of Canada, but had a 23% total return while it was held in the income list despite all of its legal troubles and should do well in an increasing rate environment in 2014, but for the more aggressive investor.
Speaking of which, I will review 2013’s aggressive portfolio performance over the next few days.