Grandma Got Run Over By A Dividend Portfolio
By: Roger Nusbaum AdvisorShares ETF Strategist
Forbes had a very short article titled High Yield Grandma which offers a brief profile of a woman who has overcome a few setbacks and has a very substantial investment portfolio worth $3 million. As the clever title implies she focuses on dividend stocks.
Based on the above paragraph there is nothing too unusual about her strategy. Dividend stocks exclusively might be a little limiting in certain environments but blue chip dividend stocks diversified across many sectors is not sheer insanity. A little further in to the article it mentions that 1/3 of her portfolio is in the “dividend-friendly stocks of companies controlled by Norwegian shipping billionaire John Fredriksen.”
Fredriksen is a billionaire several times over and his companies tend to focus on energy, the transportation of energy and he also has an interest in the fishing industry.
The chart from Google Finance shows the year to date results of the companies he controls (excluding one that does not yet pay a divided so presumably Grandma does not own it). I fuzzed out the symbols for compliance reasons but if you google Fredriksen you’ll find them.
Based on how the article is written, with no mention of a selling strategy, she may have taken a colossal hit to her portfolio and if you are familiar with Fredriksen then you know one of his companies recently eliminated/suspended its dividend.
Under the title of the article it gives two picks of hers which are both energy related. Both names had been doing well year to date but are down low single digits since Thanksgiving.
Grandma did very well with this strategy for many years but, based on how the article is laid out, she has been taking the same risk the entire time, only now is there a consequence for that risk.
We’ve been looking at essentially this exact scenario for years here and this is a perfect example of assuming a lot of risk and potential volatility in a portfolio. Some of the Fredriksen stocks have been adored by investors and if you had 3,4 or 5% in one of his names at the start of the year you may not be happy with it but it is unlikely that your portfolio looks like Grandma’s does now (again I am making assumptions based on the Forbes article as published).
In making this point over the years about MLPs, commodities and other market segments there has been pushback if the thing I am writing about is doing well and agreement if the thing I am writing about is doing poorly but the risk is the same.