I recently met with one of my friends who is an investment broker. We were talking about the US stock market and how there are plenty of investing opportunities for dividend investors at the moment. This is when he showed me his dividend holdings. He explained to me that since most US stocks are undervalued right now, the chances of building a high paying dividend stock portfolio is very good. Since most of you have already have a great dividend portfolio, I thought of sharing his and give you my thoughts on it. So today, I am presenting his dividend holdings and I will analyze some of those stocks in a later post.
US Dividend Portfolio (as of October 7th 2010):
Company Ticker Price Sector Payout Ratio (%) Dividend Yield (%)
AT & T T 28.62 Telephone-Integrated 77.65 5.87
Verizon VZ 33.36 Telephone-Integrated 145.51 5.84
Glaxosmithkline GSK 40.72 Medical-Drugs 55.87 4.49
Bristol-Myers BMY 27.19 Medical-Drugs 77.84 4.71
Prizer PFE 17.26 Medical-Drugs 57.06 4.17
Kimberly Clark KMB 66.04 Consumer Products-Misc 53.01 4
Kraft KFT 31.3 Food-Misc/Diversified 56.77 3.71
Heinz HNZ 48.17 Food-Misc/Diversified 58.04 3.74
Coca-Cola KO 59.8 Beverages-Non-alcoholic 55.61 2.94
Procter & Gamble PG 60.87 Cosmetics&Toiletries 48.84 3.17
Johnson & Johnson JNJ 63.21 Medical Products 43.42 3.42
Caterpillar CAT 79.08 Machinery-Constr&Mining 115.98 2.23
Colgate Palmolive CL 73.96 Cosmetics&Toiletries 38 2.87
General Electric GE 16.9 Diversified Manufact Op 62.15 2.84
Yum Brands YUM 47.36 Retail-Restaurants 35.29 2.11
How much do you need to build this type of dividend portfolio?
I’ve done a few calculations to see how much you would need to build this portfolio without having transaction fees eat up an important part of the dividend income. Interestingly enough, you can buy these 15 stocks with less than $21,000 ($20,905 which includes 15 transactions at $6 each). This would give you 30 shares of each stock and the transaction fees will be less than 0.5% (which is comparable to an ETF MER). You can certainly buy only 10 shares of each of them but the trading fees will therefore represent 1.3% (but will only require $7,028 to build). Considering that you will have to rebalance your portfolio from time to time (with 15 stocks, it is very possible that it triggers 2-3 transactions per year), I will keep the $21,000 portfolio for my analysis.
How much does this dividend portfolio pay?
As of October 7th 2010, the average dividend payout would represent 3.74% or $778 per year. This is a decent dividend payout to start with and it is more than enough to cover transaction fees. Considering that some companies are expected to increase their dividends again in 2011, it wouldn’t be surprising to hit a 4% dividend payout within a 2 year span.
What I like about this portfolio overall
In my next article, I will review some of those companies, but today, I wanted to look at this dividend portfolio as a whole. First things first, this portfolio has obviously been built to produce some growth. Companies like AT&T and Verizon are very well established to benefit from the Asian market. In addition to that, all pharmaceuticals should sell more pills in the years to come considering the fact that boomers will need more and more medication as they age. So on top of a growing dividend payout, you should see some great capital gains in the future. And as mentioned, most US companies are undervalued right now so chances are that any portfolio has a good chance of producing capital gains ;-).
I also like the concentration in pharmaceuticals and consumer product sectors. These are 2 sectors where companies are deemed to be steady dividend payers. They have solid balance sheets and decent payout ratios (except Bristol-Myers which is a little bit higher).
What I don’t like about this dividend portfolio
I guess you have got it by now; I would like to see some Canadian Banks in there. I like financials as they are the heart of our economy and I love Canadian Banks for their solid balance sheets, a habit of no surprises when announcing results and high dividends.
There are also some companies with very high dividend payout ratio (AT&T, Verizon, Bristol-Myers and Caterpillar). I understand that my friend is looking for growth but from a dividend perspective, those companies may have a hard time maintaining their dividends over time.
In term of sectors, I would also like to see utilities which are steady dividend payers as well.
What do you think about this portfolio?
I think you need to point out that US stocks should be held in a RRSP or you face a withholding tax of 15% in a TFSA, or 30% in an investment account.
Interesting portfolio. I particularly like the fact that you determined the necessary capital required to build this portfolio with transaction fees in mind, and then showed how much dividend income it would provide.
My likes:
-I of course like the fact that it’s a dividend portfolio.
-The average yield is substantial.
-I like the international exposure, especially with companies like KO, JNJ, CL, YUM, and, well, basically all of them.
My dislikes:
-I don’t like the complete lack of financials and energy. Admittedly my own portfolio lacks energy, but that’s something I’m addressing with upcoming purchases.
-I don’t like the high payout ratios and some of the high debt levels.
@ Dividend Monk,
It seems that have the same opinion on the portfolio. We should build one together 😉
cheers,
Mike.
Even better would be a portfolio competition between a few blogs, which I see some blogs do.
The problem is that with long-term dividend investors, it would be hugely boring and would take several years to determine the winner. Not exactly a thrill. =/
yeah, I guess that dividend investing is not as sexy as day trading or short selling 😉 but it works!
Some financials
BNS 3.3
RY 3.5
Some Energy
CVX 2.7
COP 3.4