- This diversified portfolio of 30 companies can be purchased today.
- The overall portfolio dividend yield in the first year will be 4.5%.
- The estimated dividend growth in the second year will be 4.75%, which is higher than inflation.
I've seen comments from people who observe that many Dividend Champions, Contenders, and Challengers [known as the "CCC"] (lists created by David Fish and available for free from here ) have lower current yields than in years past, because they have higher share prices than in years past.
Can an investor buy, today, a portfolio of 30 companies with "higher" dividend yield and "higher" dividend growth? Yes, if you're willing to look outside the CCC, and if you're willing to sacrifice some quality (apologies to Chowder, an SA contributor who is sometimes known as "Mr. Quality").
Suppose you buy each of the following companies -
S&P Credit Rating AAA: Johnson & Johnson (NYSE:JNJ ), ExxonMobil (NYSE:XOM )
S&P Credit Rating AA: Chevron (NYSE:CVX ), Coca-Cola (NYSE:KO ), Royal Dutch Shell (NYSE:RDS.B )
S&P Credit Rating AA-: Procter & Gamble (NYSE:PG ), Royal Bank of Canada (NYSE:RY ), Westpac Banking Corp. (NYSE:WBK )
S&P Credit Rating A+: BHP Billiton (NYSE:BBL ), Bank of Montreal (NYSE:BMO ), Bank of Nova Scotia (NYSE:BNS ), Canadian Imperial Bank of Commerce (NYSE:CM )
S&P Credit Rating A: Emerson Electric (NYSE:EMR ), McDonald's (NYSE:MCD ), PepsiCo (NYSE:PEP ), Philip Morris (NYSE:PM )
S&P Credit Rating BBB+: BCE Inc. (NYSE:BCE ), HCP, Inc. (NYSE:HCP ), Realty Income Corp. (NYSE:O ), Rogers Communications (NYSE:RCI ), AT&T (NYSE:T ), Verizon (NYSE:VZ )
S&P Credit Rating BBB: Digital Realty Trust (NYSE:DLR )
S&P Credit Rating BBB-: Kinder Morgan (NYSE:KMI ), Shaw Communications (NYSE:SJR )
S&P Credit Rating BB+: Omega Healthcare Investors (NYSE:OHI )
S&P Credit Rating BB-: R.R. Donnelly & Sons (NASDAQ:RRD )
S&P Credit Rating B+: Vanguard Natural Resources (NASDAQ:VNR )
S&P Credit Rating unrated: Monmouth Real Estate Investment Corp. (NYSE:MNR ), Textainer Group Holdings (NYSE:TGH )
Some are on the CCC lists, some are not.
are based in Australia [WBK], Bermuda [TGH], Canada [BCE, BMO, BNS, CM, RCI, RY, SJR], Netherlands [RDS.B], and the U.K. [BBL].
Some are REITs [DLR, HCP, MNR, O, OHI].
They are in different sectors: basic materials, consumer goods, financial, healthcare, industrial goods, services, technology.
Their current yields (as of Monday April 6, 2015, when I captured the raw data) ranged from 2.71% to 9.53%.
Their estimated dividend growth (see below) ranged from -1.00% (due to currency fluctuations) to 12.155%.
Some were high-quality (AAA), "lower" current yield (2.78%), and "medium" dividend growth (6.564%); others were unrated-quality, "medium" current yield (6.18%), and "lower" dividend growth (1.622%); others had "higher" current yield (9.53%); others had zero dividend growth.
No one investment is "perfect," but the component parts of this portfolio are like the various instruments in a symphony orchestra (and I apologize for failing to identify the first person at SA who used this analogy) - each has their role to play, and when combined, make beautiful music.
Suppose you purchased $10,000 of each of the 30 companies. (There is no magic to this number, I chose this amount at random.) You would spend $300,000 to build this portfolio. It would generate (at current yield) $13,550.74 worth of dividends over the next 12 months (ignoring expected increases during that interval), for a current overall portfolio yield of 4.52%; and it would generate (at estimated dividend growth) $14,194.30 over the following 12 months (ignoring expected increases during that interval), representing a 4.75% growth in dividend income, which far exceeds current inflation rates.
If you prefer to purchase more of one company and less of another, you can easily alter the overall current yield and estimated dividend growth.
In the chart below, the "current price" column represents actual prices as of sometime on Monday April 6, 2015; the "CAGR from 2000 to 2014" column represents historical dividend CAGRs reported on my dividend web site ; the "2014 increase" column comes from the same web site; the "min increase" column is the smaller of the previous two columns, so that estimated dividend growth is pessimistic rather than optimistic.