Dividends Plus Diversification

9/14/2015


We know you want dividends. And if you rely on those dividends to cover day-to-day expenses, you'd rather receive them every month.

The best income-generating portfolios have the same characteristics as other portfolios:

• Fundamentally strong stocks, most with solid Quadrix scores.

• Diversification between sectors, so you're not too sensitive to weakness in any single slice of the market.

• A mix of large, midsize, and small stocks, another type of diversification.

Income investors know the selection of dividend-payers is better in some sectors than others, and fewer small stocks pay dividends. However, if you take the time to explore small-caps and sectors with few dividend-payers, you'll end up with a stronger, more weatherproof portfolio — without sacrificing the ability to collect dividends every month.

Stocks in some sectors are more likely to pay dividends than others. For example, 90% of financial stocks and 98% of utilities in the S&P 1500 Index pay a dividend, along with 79% of stocks in the consumer-staples, industrials, and materials sectors. In contrast, just 44% of tech stocks and 34% of health-care stocks pay out.

That disparity explains why health-care stocks in the S&P 1500 average yields of 0.6%, while industrials average 1.4%. Strip away the non-dividend-payers, and the sectors look more alike, with health care and industrials averaging yields of 1.7% and 1.8%, respectively. In the other eight sectors, dividend-paying stocks yield an average of at least 2.1%, suggesting it's worth your while to scour nontraditional sectors in search of income possibilities.

Even in sectors with a low percentage of dividend-payers, diligent investors can find a decent selection. For example, if 44% of the 241 technology stocks pay a dividend, that equates to 105 payers. Our buy lists contain five dividend-paying technology stocks, and three of them — plus one stock from our sister newsletter Upside — are featured in the dividends-every-month portfolio below.

The table below features 24 stocks from seven of the 10 market sectors, with no more than 17% in any single sector. Of the 24 stocks, five are midcaps ($3 billion to $10 billion market cap) and seven small-caps (below $3 billion). An equal-weighted portfolio would yield 2.4% and pay dividends year-round.

GET DIVIDENDS EVERY MONTH
All 24 stocks in the portfolio presented below yield at least 1% and have grown the dividend at least 3% annualized over the last five years, if they've paid a dividend that long. We allowed no more than four stocks (17%) from a given sector. To further diversify, we included a mix of small, midsize, and large stocks. Stocks in bold are from our Top 15 Utilities portfolio, while those in green are from the Upside newsletter. The rest are Forecasts recommendations. The portfolio below would yield 2.4% and pay dividends every month.
Stock-
Market
Value
($Mil.)
Annual. Div.
--- Growth ---
Company (Price; Ticker)
Div.
($)
Yield
(%)
5
Years
(%)
15
Years
(%)
Quadrix
Overall
Score
Sector
Dividend paid January, April, July, and October
Banc of California
($12; BANC)
0.48
3.9
477
26
14
91
Financials
Comcast ($57; CMCSa)
1.00
1.8
143,457
23
NM
87
Cons. discret.
Foot Locker ($71; FL)
1.00
1.4
10,051
14
31
93
Cons. discret.
Laclede Group
($51; LG)
1.84
3.6
2,187
3
17
46
Utilities
Lam Research
($71; LRCX)
1.20
1.7
12,464
NM
NM
92
Technology
Thor Industries
($55; THO)
1.08
2.0
2,922
6
40
96
Cons. discret.
Trinity Industries
($26; TRN)
0.44
1.7
4,051
20
34
99
Industrials
U.S. Bancorp
($41; USB)
1.02
2.5
72,726
37
12
75
Financials
Dividend paid February, May, August, and November
Apple ($110; AAPL)
2.08
1.9
635,907
NM
NM
99
Technology
CMS Energy
($32; CMS)
1.16
3.6
8,902
15
NM
59
Utilities
CVS Health
($100; CVS)
1.40
1.4
113,460
31
41
60
Cons. staples
EQT Midstream
($74; EQM)
2.56
3.4
5,260
NM
NM
92
Energy
Lincoln National
($49; LNC)
0.80
1.6
12,548
78
7
90
Financials
Spectra Energy
($46; SEP)
2.45
5.4
13,580
8
NM
77
Energy
Star Gas ($9; SGU)
0.38
4.1
534
5
NM
97
Utilities
WGL ($53; WGL)
1.85
3.5
2,648
4
18
68
Utilities
Dividend paid March, June, September, and December
C.H. Robinson
($69; CHRW)
1.52
2.2
10,027
9
34
90
Industrials
Knoll ($23; KNL)
0.48
2.1
1,127
43
25
85
Industrials
Kroger ($34; KR)
0.42
1.2
33,850
14
NM
78
Cons. staples
Lear ($105; LEA)
1.00
1.0
8,216
NM
21
98
Cons. discret.
MKS Instruments
($33; MKSI)
0.68
2.0
1,789
NM
NM
96
Technology
Nvidia ($22; NVDA)
0.39
1.8
12,360
NM
NM
92
Technology
Robert Half Int'l
($51; RHI)
0.80
1.6
6,838
9
26
91
Industrials
Wells Fargo
($52; WFC)
1.50
2.9
272,458
48
19
88
Financials
Note: Quadrix scores are percentile ranks, with 100 the best.    NM Not meaningful.

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