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By Josh Peters, CFA and Jeremy Glaser | 01-26-2016 04:00 PM

Stock-Picking Made the Difference for Dividend Investors

Avoiding the worst of the MLP carnage and believing in GE's turnaround helped Morningstar's Dividend Select Portfolio in 2015, says Josh Peters.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm here today with Josh Peters--he's the editor of Morningstar DividendInvestor newsletter and also the director of equity-income strategy. We're going to look at his 2015 performance. Josh, thanks for joining me.

Josh Peters:  Good to be here, Jeremy.

Glaser: Josh, you manage the Dividend Select portfolio; can you talk to us about how the portfolio did last year, particularly compared with some of the big benchmarks?

Peters:  First off, I've got to tell you that, in any one year, I'm not really looking at comparisons against the S&P 500 or any other benchmarks. What really makes our strategy work well over the long run is focusing on the absolute-return component. What have I got for dividend yield? Typically, I'm looking for the portfolio to get between 3% and 5%. How fast are my dividends growing?  If they're growing at a 4%, 5%, or 6% type of pace on top of that yield that I'm expecting, the market can do whatever it wants. I'm seeing the value build and flow into my portfolio.

But the S&P 500 is an opportunity cost for anybody because you can go get a really cheap index fund and not have to think anymore. So, as an active manager, I expect to add some kind of value over the long run, and we did edge out the market a little bit. The S&P 500 actually dropped a little bit on a price-only basis, but throw in its dividends--which are a lot smaller than ours--and it eked out a 1.4% total return. We had a capital loss, too, but our dividends are so much bigger that our total return landed at 2.2%. It's not what I expect, on average; but there never seems to be an average year in the stock market. It's always way low or way high--nothing, really, in the middle.

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