But, Mousie, thou art no thy lane [you aren’t alone]
In proving foresight may be vain:
The best laid schemes o’ mice an’ men
Gang aft a-gley, [often go awry]
An’ lea’e us nought but grief an’ pain,
For promised joy.
-Robert Burns’ poem, To A Mouse, 1786
When starting this experiment I hadn’t even considered the possibility of a stock market correction on the scale of 35%+. Honestly it was a mix of foolish optimism and a lack of experience. For my entire investing lifetime it’s been a bull market. Before 2009 I didn’t have money to invest anyway. Everything was immediately spent! Now that I’m allegedly older and wiser, a significant portion of our combined income goes to investments but I have to admit that this downturn has been an emotional workout!
Enough gloom and doom! Let’s get back to the real content of the experiment at hand!
In this post I’ll outline the specific stocks and funds I chose, why I chose them, and what I anticipate the outcome to be overall.
First: Dividend-paying indexes
Our first group contender is the $1000 invested with Webull into dividend-paying indexes. If you’re not familiar with the concept of an index, here’s a very short explanation. An index is just a group of stocks chosen based on whatever parameters people want, all grouped together into one basket. You buy a portion of the entire basket, getting the benefits of diversifying with all those stocks inside it.
Still feel a little confused? Me too….let’s think about it in terms of pizza!
The ingredients of the pizza represent stocks. Flour, water, salt, pepperoni, sausage, tomato, oregano, cheese, olives, onion, etc…. Choosing individual stocks is like just buying the cheese or the salt or a little piece of sausage. If they are really awesome (i.e. increase in value/pay regular dividends) then maybe you’d be happy with just eating them alone. But if you want all of them combined, you would have to go out and buy specific amounts of each to aggregate yourself. That’s a lot of work to find what you want, how much of it you want, and buying it all in pieces.
In contrast, an index is just buying the whole pizza. Its assembled for you with all the right ingredients based on what you ordered. Ah you like the pizza based on the S&P 500? Here you go. Only want the dividends and don’t care about growth, there’s a pizza (index) for you. Whatever your flavor, there’s an index already hot and ready and waiting.
The benefits are that an index is simple, automatically diverse, and readily available. It’s a powerful tool that you can take advantage of now and don’t even need to hire a fancy high-powered financial guru to manage.
“By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”
(Warren Buffet, 1993)
I chose a small handful of indexes that are made to follow dividend paying companies. This way I get to take advantage of all of them simultaneously! Here they are:
- VIG: Vanguard Dividend Appreciation ETF
- VYM: Vanguard High Dividend Yield ETF
- JDIV: JPMorgan U.S. Dividend ETF
VIG: Vanguard Dividend Appreciation ETF
Vanguard has always been a go-to investment group for people looking for low fees and great returns. They LITERALLY invented the index fund for this purpose. VIG is a fund that is designed to track another index called the NASDAQ US Dividend Achievers Select Index. That index chooses investments with at least ten consecutive years of increasing annual regular dividend payments. Sounds good to me! On top of that, the expense ratio is a teeny tiny 0.06%! That’s about as close to totally free investing as we are going to get! It holds 186 different stocks and most of them are big names you’ve definitely heard of. Like these:
Month-end 10 largest holdings
(35.50% of total net assets) as of 02/29/2020
| 1 | Microsoft Corp. |
| 2 | Visa Inc. |
| 3 | Procter & Gamble Co. |
| 4 | Walmart Inc. |
| 5 | Johnson & Johnson |
| 6 | Comcast Corp. |
| 7 | McDonald’s Corp. |
| 8 | Abbott Laboratories |
| 9 | Medtronic plc |
| 10 | Costco Wholesale Corp. |
| Sector | ||
|---|---|---|
| Basic Materials | 3.6% | |
| Consumer Goods | 10.6% | |
| Consumer Services | 20% | |
| Financials | 11.5% | |
| Health Care | 11.9% | |
| Industrials | 26.2% | |
| Technology | 9.9% | |
| Utilities | 6.3% | |
JDIV: JP Morgan U.S. Dividend ETF
I only chose this ETF because I needed to round out the $1000 total and the price was just about right to do that! I did almost no research to choose it besides noticing the famous name (JP Morgan) and the fact that it held over 200 companies. It turns out that it’s a very small ETF with only about $34 million in holdings. Thankfully, it’s well-diversified over a number of sectors and companies! It is also inexpensive to own with a net expense ratio of 0.12%! That means they only charge you $1.20 for every $1000 invested.
JDIV Top 10 Holdings
As of 03/25/2020
| Symbol | Name | Security Identifier | % of Net Assets | Market Value |
| CLX | CLOROX CO/THE COMMON | 189054109 | 0.84% | 216,351.96 |
| GILD | GILEAD SCIENCES INC | 375558103 | 0.82% | 211,836.06 |
| DLR | DIGITAL REALTY TRUST INC | 253868103 | 0.82% | 210,802.48 |
| CY | CYPRESS SEMICONDUCTOR | 232806109 | 0.80% | 206,885.00 |
| LLY | ELI LILLY & CO COMMON | 532457108 | 0.80% | 205,346.96 |
| AMGN | AMGEN INC COMMON STOCK | 031162100 | 0.79% | 202,410.72 |
| INTC | INTEL CORP COMMON STOCK | 458140100 | 0.78% | 201,861.88 |
| VZ | VERIZON COMMUNICATIONS | 92343V104 | 0.78% | 200,209.46 |
| JNJ | JOHNSON & COMMON | 478160104 | 0.77% | 199,278.60 |
| GIS | GENERAL MILLS INC COMMON | 370334104 | 0.77% | 197,271.00 |
Sector Exposure
As of 03/25/2020
| Sector | FUND | |
| Basic Materials | 9.5% | |
| Consumer Goods | 15.1% | |
| Consumer Services | 7.9% | |
| Financials | 16.4% | |
| Health Care | 7.6% | |
| Industrials | 9.5% | |
| Oil & Gas | 5.5% | |
| Other | 0.0% | |
| Technology | 6.4% | |
| Telecommunications | 3.7% | |
| Utilities | 18.9% |
VYM: Vanguard High Dividend Yield ETF
VYM is yet another index that’s made to track some other index. It is designed to track the FTSE High Dividend Yield Index. Unlike the FTSE index it is made up of domestic stocks, but holds a very similar ethos of only holding dividend-paying companies. Like the others, it’s made up of many different companies so all of your eggs aren’t trusting the same proverbial basket. For example, at the end of February the top holding was a tie between JPMorgan Chase & Co and Johnson & Johnson at 3.80%. So even if Chase absolutely plummeted, it’s less than 4% of the whole. The 10 largest holdings in the index make up less than 27% of the total, which gives you an idea of how small each piece of the pie really is. I view this as a good thing. Yes, it’s less likely to have a rocket ship company make me a millionaire overnight, but that also means it’s likely to handle the market downturns better as well.
If you care to compare, there’s the break-down of the different sectors of companies in this index fund:
Portfolio composition
Equity sector diversification
| Sector | High Dividend Yield ETF as of 02/29/2020 | FTSE High Dividend Yield Index (Benchmark) as of 02/29/2020 |
|---|---|---|
| Basic Materials | 3.30% | 3.30% |
| Consumer Goods | 14.40% | 14.40% |
| Consumer Services | 9.20% | 9.10% |
| Financials | 18.30% | 18.30% |
| Healthcare | 14.10% | 14.10% |
| Industrials | 8.30% | 8.30% |
| Oil & Gas | 7.10% | 7.20% |
| Technology | 10.60% | 10.50% |
| Telecommunications | 5.20% | 5.20% |
| Utilities | 9.50% | 9.60% |
Whew! Lots of numbers. Just a few more: About 98% of this part of the investments are in the 2 Vanguard funds, with a tiny bit of that oddball JDIV bringing up the last 2%. The point of this exercise is to test how easy it is to just pick 1-2 (or in my case 3 just to round out an even $1k) indexes and “set it and forget it”.
Second: Picking specific companies that pay dividends.
This is what it feels like to me when anyone picks an individual company. Or even a handful of individual companies. I’m FAR from a financial analysis guru, but even people who make a successful career from analyzing companies financial standing can’t accurately and reliably pick winners. The fact that the pro’s lose to “the market” as a whole over 95% of the time makes me realize how small of a chance I actually have to do that kind of thing.
For the purposes of this experiment I picked dividend paying companies that the Interwebs claim are worth considering. Once you type things like “dividend stocks” and “passive dividend investing” into Google, you get a lot of very direct advise (and a lot of people wanting to sell you their opinion) on where to invest your hard earned money.
A lot of people claim the “Dividend Aristocrats” are a sure-fire way to succeed. So I considered those. Others have hot picks based on the current state of the market, of consumer sentiment, of perceived demand, or any other number of factors. Knowing that the pros don’t generally taste success with a TON of smart analysis made me feel like I was partially off the hook when it came to pouring over prospectus statements and P/E ratios and all the other paperwork available. I went with what made sense at the time and didn’t look back.
SO, who did I choose. These lovely companies:
- F: Ford
- ABBV: AbbVie
- AOS: A.O. Smith
- MMM: 3M
- PBCT: People’s United Bank
- WBA: Walgreens
- XOM: Exxon Mobile
- T: AT&T
- PSEC: Prospect Capital
The only company that I didn’t choose strictly on the recommendations of logic and anonymous internet brethren was Ford. I like their vehicles. I’ve also wanted to invest in them since 2010, and have regretted not since at the time the stock was only $2.00/share. It’s risen a lot since then and has paid dividends along the way.
You’ve likely heard of a handful of these companies and have an idea of what they do. I’d never heard of PBCT or PSEC. People’s United Bank is a bank and financial holding company doing….bank sounding stuff. (Insert shrug emoji here!) And Prospect Capital is a business development company that basically lends money to companies or invests in them directly. Anyway, enough about them.
In next week’s post I’ll share how the results have fared thus far. Fair warning: it is NOT pretty.
Abacus Fitness and Money 
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