Lessons From A Dividend Income Portfolio For Retirement - InvestingChannel

Lessons From A Dividend Income Portfolio For Retirement

Proprietary Data Insights

Top Financial Pro Dividend Growth Stock Searches This Month

Rank Ticker Name Searches
#1 AAPL Apple 532
#2 VZ Verizon 218
#3 MSFT Microsoft 176
#4 AVGO Broadcom 144
#5 TGT Target 113
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Lessons From A Dividend Income Portfolio For Retirement

The Juice reads everything we can get our hands on about personal finance and investing — especially on housing, cost of living, retirement, dividend stocks and ETF investing — to bring you an easy-to-digest daily set of thoughts and ideas designed to help you stay informed and be better with money. 

We talk a lot about dividend growth investing. And, based on the feedback we receive, you seem to love it. So today we focus on it with one example of what a dividend growth investing platform can look like. 

In today’s Trackstar top five, you find the dividend growth stocks financial advisors are searching for most across our 100+ financial media partner platforms. 

The list looks considerably different from the one we showed you in Tuesday’s Juice, where we focused on retail investors and recapped the difference between mere dividend-paying stocks and dividend growth stocks, while suggesting Meta Platforms (META) as a long-term, retirement-focused dividend play. That Juice, along with 3 Reasons Why Dividend Stocks Aren’t Always The Best, is required reading alongside today’s installment. 

No doubt, dividend stocks aren’t the end all and be all. However, they can certainly serve as the cornerstone of a long-term portfolio. We just like to set realistic expectations around the approach, as we illustrate today. 

But first …

Let’s look at the dividend increase streaks today’s Trackstar stocks have managed to put together over the years:

  • Apple (AAPL): 12 years
  • Verizon (VZ): 19 years 
  • Microsoft (MSFT): 22 years
  • Broadcom (AVGO): 14 years
  • Target (TGT): 53 years

That’s a good mix of names with AVGO the leader of the pack, up roughly 91% over the last year. 

We follow a blog by someone who goes by Wealth Capitalist. They’re a big dividend growth stock investor. The other day we received their 2023 portfolio update. The Juice thinks it can help inform your approach, so here are some highlights we took from the update

  • In 2023, Wealth Capitalist generated $5,945 in dividend income

That’s up from $4,817 in 2022. So, an impressive gain. 

But it also took a significant slate of stocks and ETFs to generate this much income. Let’s consider some of Wealth Capitalist’s best paying positions. 

Their top position was National Instruments Corporation (NATI), which was bought out by Emerson Electric (EMR) in 2023. But the old NATI position generated nearly $975 of that dividend income. 

The next biggest income generator, among individual stocks, was Altria Group (MO), which threw off about $590. This position made up just shy of 10% of this investor’s portfolio. That’s a big commitment. So there’s a lesson here. 

As of this week, to get that level of income from the company, you’d need a position size of roughly $6,700 or approximately 150 shares of MO stock, based on the current, very spicy 8.8% yield. Of course, the stock yields that high, in large part, because it’s somewhat beaten down. 

Over the last year, MO is down about 3.0%. Over the last five years, it’s off roughly 20.0%. 

Some might question the practice of keeping so much of your capital tied up in a stock that’s basically a dog. While hindsight is 20/20, you would have done way better putting $6,700 in the S&P 500 a year ago and forgetting about it. 

That said, some dividend growth investors don’t care about that logic. Their logic is all about generating cash flow via dividend income. Altria has increased its payment for 55 consecutive years and the yield is high (even if that’s partially a function of the crappy stock price). 

To each their own. We can see both sides of the coin, but we would have much rather been in, say, AVGO over the last year, given that it’s a more ideal combination of stock and dividend growth. 

In fact, AVGO has increased its dividend by around 12.5% over the last year and three-year periods compared to just over 4.0% for MO. It also has a much lower payout ratio. So you could make the case for AVGO as a superior dividend growth and overall stock to MO. 

On the flip side, Wealth Capitalist’s second largest dividend position overall (in terms of income) is an ETF. The Vanguard Total Stock Market Index Fund ETF (VTI) generated just over $763 in income and comprised 12.8% of the portfolio. 

Typical of Vanguard index funds, it has a super low expense ratio of 0.03%. Its 30-day yield is 1.33%. And the fund is up approximately 30% and 78% over one- and five-year periods. A good solid performer that tracks a passive broad market index. 

You can check out the other names in this portfolio on your own. When we came across it, it caught our eye because it makes for a nice illustration of the pros and cons of dividend growth investing. 

It’s questionable to keep so much cash in a loser just because of the dividend at the same time as it makes almost irrefutable sense to tie up a solid chunk of capital in a low-cost, broad market ETF. 

The Bottom Line: We don’t think dividends or dividend growth should be the only criteria for investing in a stock. We prefer to diversify our approaches where we might focus on dividends in one area, but take into account numerous factors when assessing the dividend. 

As noted, we featured META yesterday. That stock would not make the watchlist of a dividend growth investor. Which is sort of weird. Because you want to be on the front end of a company’s payouts. You would have been better buying — going back to today’s Trackstar list — MSFT and TGT some 22 and 53 years ago rather than waiting for the day (which is super arbitrary) they became more mature dividend growth stocks.

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