Investment Thesis
I recently published an article here on Seeking Alpha about 10 high dividend yield companies that, in my opinion, merit closer examination. These companies stand out due to their presently appealing Valuation, competitive advantages, robust financial health, and their potential for dividend growth, in addition to offering an attractive dividend income:
Yields Of More Than 9%: My Top 10 High Dividend Yield Companies, February 2024.
In today’s article, I will demonstrate how you can distribute the amount of $100,000 among 2 ETFs and the 10 selected high dividend yield companies, ensuring a reduced risk level for such a dividend portfolio.
I have selected Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) and Vanguard S&P 500 ETF (NYSEARCA:VOO) for this dividend portfolio. I am convinced that both ETFs combine dividend income and dividend growth while complementing each other effectively with minimal overlap in their constituent companies.
Through the allocation of this dividend portfolio, it provides investors with a Weighted Average Dividend Yield (TTM) of 3.72%, accompanied by a 5 Year Weighted Average Dividend Growth Rate (CAGR) of 8.09%.
These figures highlight the portfolio’s capacity to mix dividend income with dividend growth, and to generate a substantial income stream for today, while incorporating growth elements to ensure continuous dividend enhancements for the years to come.
I have included the following two ETFs and 10 high dividend yield companies as part of this dividend portfolio:
- Schwab U.S. Dividend Equity ETF.
- Vanguard S&P 500 ETF.
- The Coca-Cola Company (NYSE:KO).
- Enterprise Products Partners (NYSE:EPD).
- Intesa Sanpaolo (OTCPK:ISNPY)(OTCPK:IITSF).
- Verizon (NYSE:VZ).
- AT&T (NYSE:T).
- Altria Group (NYSE:MO).
- British American Tobacco (NYSE:BTI).
- Realty Income (NYSE:O).
- Boston Properties (NYSE:BXP).
- U.S. Bancorp (NYSE:USB).
Overview of the 2 Selected ETFs and February’s Top 10 High Dividend Yield Stocks
Symbol Name Sector Industry Country Market Cap Dividend Yield (TTM) Payout Ratio Dividend Growth 5 Yr (CAGR) P/E (FWD) Allocation Amount SCHD Schwab U.S. Dividend Equity ETF ETF ETF United States 3.48% 13.05% 45.00% 45000 VOO Vanguard S&P 500 ETF ETF ETF United States 1.39% 6.06% 25.00% 25000 KO The Coca-Cola Company Consumer Staples Soft Drinks & Non-alcoholic Beverages United States 259.36B 3.07% 68.68% 3.36% 24.15 3.00% 3000 EPD Enterprise Products Partners Energy Oil and Gas Storage and Transportation United States 57.01B 7.64% 79.02% 3.05% 9.86 2.50% 2500 ISNPY Intesa Sanpaolo Financials Diversified Banks Italy 55.80B 8.25% - 1.38% 5.57 1.50% 1500 VZ Verizon Communication Services Integrated Telecommunication Services United States 169.93B 6.52% 55.94% 2.01% 8.91 2.00% 2000 T AT&T Communication Services Integrated Telecommunication Services United States 123.91B 6.41% 46.06% -6.07% 8.26 3.50% 3500 MO Altria Group Consumer Staples Tobacco United States 71.00B 9.54% 77.58% 5.06% 8.01 3.50% 3500 BTI British American Tobacco Consumer Staples Tobacco United Kingdom 65.30B 9.87% - 2.69% 6.94 4.00% 4000 O Realty Income Real Estate Retail REITs United States 38.73B 5.75% 73.90% 3.66% 41.01 4.50% 4500 BXP Boston Properties Real Estate Office REITs United States 11.18B 6.15% 55.05% 2.29% 24.12 3.50% 3500 USB U.S. Bancorp Financials Diversified Banks United States 62.18B 4.84% 58.84% 7.57% 10.2 2.00% 2000
Source: The Author, data from Seeking Alpha
Risk Analysis of The Current Composition of This Dividend Portfolio
Risk Analysis of the Portfolio Allocation per Company/ETF
Schwab U.S. Dividend Equity ETF (with a proportion of 45% of the overall portfolio) and Vanguard S&P 500 ETF (25%) are the two largest compositions of this dividend portfolio.
Given their combination of dividend income and dividend growth and the fact that both ETFs have a distinct focus, I believe they serve as effective components in successfully executing our investment strategy of integrating both dividend income and growth.
The largest individual positions of this dividend portfolio are Realty Income (with a proportion of 4.5%), British American Tobacco (4.0%), AT&T (3.5%), Altria (3.5%), Boston Properties (3.5%) and Coca-Cola (3%).
Enterprise Products Partners (2.5%), U.S. Bancorp (2%), Verizon (2%), and Intesa Sanpaolo (1.5%) represent a smaller proportion of the overall portfolio. This is due to their higher risk-profile and/or due to the fact that Schwab U.S. Dividend Equity ETF and/or Vanguard S&P 500 ETF already hold a stake in them.
By providing these companies with a smaller proportion compared to the overall portfolio, we ensure that they do not get a disproportionally high share compared to the overall portfolio. This strategy contributes to the portfolio’s reduced overall risk level.
All of the individually selected companies pay an attractive Dividend Yield (TTM), with each of them contributing to increasing the Weighted Average Dividend Yield of the overall portfolio. At the same time, I believe they can provide your portfolio with dividend growth in the coming years.
Risk Analysis: Analyzing the 10 Selected High Dividend Yield Companies of This Overall Portfolio
Analysis of the Dividend Yield (TTM) and 5 Year Dividend Growth Rates (CAGR) of The 10 Selected High Dividend Yield Companies of This Dividend Portfolio
The chart below illustrates that the 10 selected high dividend yield companies effectively combine dividend income and dividend growth.
The three individual companies with the highest Dividend Yield (TTM) are British American Tobacco (Dividend Yield (TTM) of 9.87%), Altria (9.54%), and Intesa Sanpaolo (8.25%). Each has shown a positive 5 Year Dividend Growth Rate (CAGR): while British American Tobacco’s stands at 2.69%, Altria’s is at 5.06% and Intesa Sanpaolo’ is at 1.38%.
From the 10 selected high dividend yield companies that are part of this dividend portfolio, only AT&T has shown a negative 5 Year Dividend Growth Rate (CAGR) of -6.07%, underlying the reduced risk level of this dividend portfolio and its elevated likelihood for positive investment results.
The chart strengthens my confidence that this dividend portfolio is an attractive option for those investors who would like to effectively blend dividend growth with dividend income.
Analysis of the 60M Beta Factors of the 10 Selected High Dividend Yield Companies of This Overall Portfolio
It is worth highlighting that 7 out of the 10 selected high dividend yield companies exhibit 60M Beta Factors below 1. These figures clearly indicate that the companies can effectively contribute to reducing portfolio volatility.
The five companies that contribute the most to reducing the volatility of this dividend portfolio are British American Tobacco (with a 60M Beta Factor of 0.24), Verizon (0.4), Coca-Cola (0.59), Altria (0.69), and AT&T (0.71). Therefore, each of these companies is an important strategic component of this dividend portfolio, playing a key role in safeguarding it during stock market downturns, thus providing you with a reduced risk level.
Risk Analysis of the Company-Specific Concentration Risk When Allocating SCHD and VOO Across the Companies They Are Invested in
The chart below illustrates the composition of this dividend portfolio when allocating SCHD and VOO across the companies they are invested in.
Coca-Cola represents the largest position of this dividend portfolio, accounting for 4.89%. The second largest position is Altria (with 4.54%), followed by Realty Income (4.52%), and British American Tobacco (4.00%).
The fifth largest position of this dividend portfolio is Verizon (3.98%), followed by AT&T (3.57%), Boston Properties (3.50%), U.S. Bancorp (2.90%), and Enterprise Products Partners (2.5%). All other companies represent less than 2.5% of the overall portfolio.
Due to the careful combination of ETFs and individual companies, we ensure that no single company accounts for more than 5% of the overall investment portfolio, even when allocating SCHD and VOO across the companies they are allocated to. This ensures a reduced company-specific concentration risk for this dividend portfolio.
Please note that the chart only illustrates those companies that account for more than 1.5% of this dividend portfolio. Therefore, the sum does not equal 100%.
Risk Analysis of the Portfolio’s Sector-Specific Concentration Risk When Distributing SCHD and VOO Across the Sectors they Are Invested in
The graphic below illustrates the sector allocation of SCHD and VOO across their respective sectors. The Consumer Staples Sector represents the largest proportion of this dividend portfolio, accounting for 17.43%. This sector is known for its resilience and stability, since companies from it tend to be less volatile, further indicating a reduced risk level for the dividend portfolio I am presenting in today’s article.
The Financials Sectors is the second largest sector, representing 13.85% of the overall portfolio. Followed by the Information Technology Sector (with 13.12%) and the Health Care Sector (10.91%).
All other sectors account for less than 10% of the overall portfolio: the Communication Services Sector represents 9.74%, the Industrials Sector 9.56%, the Real Estate Sector 8.61%, the Energy Sector 7.59%, and the Consumer Discretionary Sector 6.97%.
The Materials Sector (with 1.46%) and the Utilities Sector (with 0.76%) represent a relatively small percentage of the overall investment portfolio.
The fact that the Consumer Staples Sector is the only sector that accounts for more than 15% of the overall portfolio, highlights, once again, the portfolio’s reduced sector-specific concentration risk, which leads to a lowered overall risk level. This indicates that the portfolio boasts an increased probability of producing favorable investment outcomes.
Risk Analysis of The Equity Style of This Dividend Portfolio
The graphic below can serve as an additional indicator of the lowered risk level of this dividend portfolio. This is due to it demonstrating that 76% of the portfolio constitutes of large-cap companies, while 22% are mid-cap companies and 2% are small-cap companies.
This equity allocation signifies a lower risk level for the portfolio given the substantial inclusion of large-cap companies, which are associated with reduced risk.
Furthermore, it can be highlighted that almost half of the companies (49%) are value companies, while only 14% are growth companies and 37% are core companies (combining value and growth), further highlighting the portfolio’s reduced risk level.
38% of the chosen companies are large-cap companies with a value focus, reinforcing my conviction that this portfolio is associated with a low-risk level. This composition offers investors who implement such a portfolio enhanced prospects of achieving positive investment results.
The Additional Advantages of The Dividend Income Accelerator Portfolio in Comparison to This Dividend Portfolio
The Weighted Average Dividend Yield (TTM) of this dividend portfolio stands at 3.72%, accompanied by a 5 Year Weighted Average Dividend Growth Rate (CAGR) of 8.09%, indicating that it blends dividend income with dividend growth.
On Seeking Alpha, I am in the process of developing The Dividend Income Accelerator Portfolio. In addition to providing investors with a reduced risk level and elevated chances for positive investment outcomes, the portfolio merges dividend income with dividend growth.
The article below demonstrates in greater detail the characteristics and goals of The Dividend Income Accelerator Portfolio:
The Construction Of The Dividend Income Accelerator Portfolio.
At this moment in time, The Dividend Income Accelerator Portfolio provides investors with a Weighted Average Dividend Yield (TTM) of 4.31%, while it offers a 5 Year Weighted Average Dividend Growth Rate (CAGR) of 8.37%.
These metrics showcase that The Dividend Income Accelerator Portfolio provides investors with an excellent mix of dividend income and dividend growth, surpassing even the portfolio discussed in today's article.
The article below highlights the current composition of The Dividend Income Accelerator Portfolio:
HDV: The Latest Acquisition For The Dividend Income Accelerator Portfolio Is Another Important Strategic Buy.
Conclusion
The dividend portfolio presented in today’s article consists of 2 ETFs and 10 attractive high dividend yield companies that I have selected for February 2024.
The portfolio provides investors with a reduced risk level, evidenced by a relatively low company-specific concentration risk (even when distributing SCHD and VOO across their respective companies, the largest position (Coca-Cola) accounts for only 4.89% of the overall portfolio,) and a low sector-specific concentration risk.
The reduced sector-specific concentration risk is evidenced by the fact that only the Consumer Staples Sector accounts for slightly more than 15% of the overall portfolio, while all other sectors represent each less than 15%.
The portfolio’s reduced overall risk level is further proven by the fact that 38% of the selected companies are large-cap companies with a value focus (when distributing SCHD and VOO across their respective equities). It is further underlined by the fact that the 10 chosen high-dividend yield companies effectively merge dividend income and dividend growth, and that seven of them have a 60M Beta Factor below 1, highlighting their ability to lower portfolio volatility.
With a current Weighted Average Dividend Yield (TTM) of 4.31% and a 5 Year Weighted Average Dividend Growth Rate (CAGR) of 8.37%, The Dividend Income Accelerator Portfolio provides investors with an even superior combination of dividend income and dividend growth. These figures highlight the elevated attractiveness of The Dividend Income Accelerator Portfolio for investors seeking to boost their annual income via dividend payments year over year.
Author’s Note: Thank you for reading! I would appreciate any feedback on this dividend portfolio allocation article and any thoughts on the two selected ETFs and the 10 chosen high dividend yield companies for February 2024 and their respective allocation!
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
This article was written by
Frederik Mueller
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I specialize in constructing investment portfolios aimed at generating additional income through dividends. My focus lies on identifying companies with significant competitive advantages and strong financials that can provide you with an attractive Dividend Yield and Dividend Growth, thus enabling you to augment your dividend income annually. By combining high Dividend Yield and Dividend Growth companies, you can gradually reduce your dependence on the broader stock market fluctuations.I also assist you in achieving a well-diversified portfolio across various sectors and industries. This diversification strategy aims to minimize portfolio volatility and mitigate risk. I also suggest incorporating companies with a low Beta Factor, which further contributes to reducing the overall risk level of your investment portfolio. My suggested investment portfolios commonly consist of a blend of ETFs and individual companies, emphasizing broad diversification and risk reduction.The selection process for high dividend yield and dividend growth companies within the investment portfolio is meticulously curated. I prioritize the pursuit of total return, encompassing both capital gains and dividends, rather than solely focusing on dividends in isolation. This approach ensures that your portfolio is designed to maximize returns while considering the full spectrum of potential income sources. By leveraging my expertise, you can benefit from a well-crafted investment portfolio that aims to generate extra income through dividends, while reducing risk through diversification, and prioritizing total return.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of SCHD, KO, VZ, AT&T, MO, BTI, O, USB either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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