Building a Portfolio of High Dividend Yield Companies
I’m seeing a lot of large-cap+ companies with very sustainable and safe business models offering 4%+ dividend yields. I’ve tried swing trading for the past few years and have barely beat the market in 2/3 years and underperformed in the third. This is making me want to switch to an investing approach. Also, my new job makes me report all trades before I put them through and that kills timing.
So anyway, what are your thoughts on building a portfolio of safe companies with high dividend yields, letting them sit, and either collecting or re-investing dividends? If you need cash, you could just sell a position.
Waste Management (WM) for instance, has a dividend yield of ~3.7%. I bought $5,000 last month and just received a $45 quarterly dividend; that’s $190 a year. In ~30 years, it’s paid for itself and my kids don’t have to work. Meanwhile, I've been reinvesting dividends and putting savings into new companies with high dividend yields in various industries.
Thoughts? It’s either this or index funds & open-ended mutual funds (Oakmark looks good).
Here are some stocks I'm looking to get into:
1) Annaly Capital Management, Inc. – NYSE: NLY 2) The Blackstone Group L.P. – NYSE: BX 3) HSBC Holdings – NYSE: HSBC 4) Kinder Morgan Energy Partners LP – NYSE: KMP 5) Williams Partners L.P – NYSE: WPZ
Annaly has been cutting their dividend steadily the past few years. A dividend portfolio will also underperform
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Woah there Mr. Buffett, sounds like you've just invented value investing
I don't necessarily disagree with your approach (i'm a long-term investor myself), that said I would also raise the caution flag regarding the type of companies your are looking at. High dividend yielding companies can look attractive from an income perspective but there are two main concerns in my mind. A) Are they paying a high dividend because they lack growth/investment opportunities and its easier to just return cash to share holders B) What happens to share prices in a rising interest rate environment? As interest rates normalize, increased demand for higher yielding treasuries will reduce demand for high yielding stocks, pushing prices/multiples down. If you think of these companies like bonds and the dividend yield as a spread to the treasury rate, then the yield would have to increase as treasury rates increase. If the company isn't growing/increasing dividends the only way that yield increases is by prices going down. Not as exact science nor necessarily correct from a strictly theoretical point of view, but a construct to consider.
Again, don't disagree with your approach but I would focus on companies that have shareholder friendly capital allocation plans (dividends + buybacks) and that have the potential to compound earnings over the long term. Then you get income + capital appreciation.
Just my opinion.
Next up for you is learning to diversify, you have mostly financial stocks.
Och-Ziff Cap Pepco AT&T Walmart J&J GE P&G
Also, like already mentioned.... most companies with extremely high yields lack performance.
LO and NMM are the 2 biggest divvy stocks in my portfolio now. (Not sure i'd buy into NMM at these levels though, I've been a buyer since 14s).
I think Lorillard is interesting with the menthol ban constantly hanging over its head, which I think is very unlikely to happen. Added bonus owning Blu e-cigs and capturing some growth there as cig volumes continue to decline. Also rumors of a buyout lately.
NMM is a greek dry bulk shipper. Seems like a market leader to me that was unfairly depressed because its greek and I was a buyer throughout that time. Obviously shipping is very cyclical, so I like it as a long-term global recovery play as long as they can sustain the dividend (~9%)
Fuck is dealing with compliance a hassle..
Why is 4% div yield getting you all hot 'n bovvered when 10y treasuries are yielding arnd 3%? Moreover, the underperformance of NLY isn't a coincidence in this context, either...
I am not necessarily disagreeing, but I am just curious how you determine what yield you find attractive...
You can get div yield in the 4-7% range in large-cap equities. That beats bonds. You also get capital gains hopefully.
Hopefully? Problem you got is that, for many of your choices, you're very likely to get capital losses, rather than capital gains in a rising rate environment of the near future. NLY is a good example, but you should probably extend this argument to energy MLPs, like KMP or WPZ. If you were to look at the traditional blue-chips (say GE, WMT, etc) you are gonna get a div yield which is not that far different to treasuries.
My point, I guess, is that this ain't no "free lunch". It's probably not even a "cheap lunch", at this particular point in time (unless, of course, you believe that rates are staying at 0 for a long long time)..
Also realize that these stocks with high yields may (ironically despite higher yields ) actually be trading at a premium to intrinsic value right now as the yield starved environment has poured investors into these areas so their high yield might actually be discounted right now
Look at companies that have had solid compounded aggregate dividend growth as they're most likely the ones which have been steadily growing and outperforming as a company which will give you both future appreciation of principal as well as increasing yields
If you're a yieldhuntrr right now you should have some MLPs REITs etc in there too
Isn't WM a shitty roll-up strategy run by fraudsters?
Apart from the growing industries, one must also invest in long term dividends. These stocks are going to help you in the long run.
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