Dividend Plays (Your Grandma's Portfolio)

Blazin

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Post your blue chip dividend aristocrat plays . For those of us who like to play it safe, there are some great strategies for trading low beta dividend stocks including options plays making use of cash secured puts and covered calls to boost returns and manage risk.

Links:
General Info & Terms

Dividend Calendar
 
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Izo

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Teach us, sensei Blazin Blazin
 

Blazin

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Dividend Portfolio I currently trade

Pepsico (PEP) 2.91%
Pfizer (PFE) 4.48%
Procter & Gamble (PG) 2.45%
Abbvie (ABBV) 4.87%
Coca Cola (KO) 3.29%
Lockheed Martin (LMT) 3.08%
Verizon (VZ) 4.56%
AT&T (T) 7.23%
IBM (IBM) 5.27%
JPMorgan (JPM) 2.57%
Citibank (C) 3.21%
Cisco (CSCO) 2.94%

Could definitely have a more diversified portfolio name than me as there are a lot to choose from. I'm currently working to expand my list by 5 or 6 names but I don't like it to get too high as it becomes hard to keep up on too many names and will start missing opportunities or fail to see dangers. I sell cash secured puts against the name I don't currently hold at strikes I want to own them. Once/if I end up taking the shares then I begin selling calls monthly against the position at upper levels of resistance/range. If I lose my shares I rinse and repeat. So boring stocks that trade in predictable ranges are great for this strategy.

I track three baskets of returns: Capital Appreciation, Dividends, and Options premium.
 

Sanrith Descartes

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I started with a dividend portfolio. I manage my mom's investments and its still dividend heavy due to her age and where she is in the life cycle.

Things to understand...


Read up on the terms value and growth if they are unfamiliar to you.

Quoting one of my previous posts on the subject..
This goes back to the type and age of a stock. Generally, stocks are considered "growth" and "value". Growth stocks tend to be those that are "growing" their revenue streams year after year. They tend to be putting every dollar made back into the company to grow that revenue. Then there are older, more established companies. Value companies. Many of them are dominant in their sectors. They have little growth left in them but make enormous amounts of money due to their dominant position. Instead of using those earnings to grow revenue that isnt their, they return some of those profits back to the owners (shareholders) in the form of dividends.

Value investing has been back-seated for a long time because of the geriatric bull market. Some investors have never experienced investing in a multi-year bear market. Imagine an entire year when the S&P 500 is negative for the year. Owning shares in stocks that pay 3, 4 even 5% dividend yields means you are making money in those years.

Also - Older, fixed income investors like high dividend stocks so they can live off those dividends without having to liquidate principal holdings. Lets say you retired with 1 million in stocks that average a 5% dividend yield. That is 50k a year in dividends added to social security. If your house and car are paid off, that may give you a comfortable lifestyle without selling any stock.

Finally - You may take a position on a down stock you like knowing it will take time to recover or in an industry that will be slow to recover. Getting paid 1 or 2% while you wait for it to move back up is a bonus. I always put everything in terms of the annualized return of the SP500. 9.75% This includes the dividend reinvestment. The S&P pays about a 1.5 - 2% dividend over all. So having a safe play stock that pays 3-5% is a nice hedge.

Some people ignore dividends and value stocks in favor of growth. Its an investing philosophy.

Dividend stocks definitely have a place in any portfolio. Many investors have never seen a multi-year long bear market. A 4% dividend yield when the S&P 500 is -10% for the year is pretty amazing.

Dividend Stocks I like/Own/Have Owned:
ABBV - 4.87%
KO - 3.29%
PG - 2.45%
KMB - 3.45%
T - 7.23%
LMT - 3.08%
GD - 2.76%
HDV (ETF) - 3.96%
PM - 5.58%
MCD - 2.44%
CVS - 2.74%
IBM - 5.35%
ED - 4.35%
PFF (ETF) - 4.80%


Note these dividend yields are as of today's close. The market is at near highs so some of these yields aren't at a spot where I might buy them today. Some of the factors to consider with dividend stocks is their free cash flow and their free cash flow to dividend payout ratio. This tells you if the payout will be sustainable over the long haul.

I would not hesitate to buy ABBV today. I have owned it since the $60's. I own as much as my portfolio will allow.
T is a dividend beast. It has shitty upper level management and a fuckton of debt. But it makes a bzallion dollars in free cash flow and can sustain the dividend while paying down the debt. Zero interest rate environment is helping them re-issue their debt to lower interest rates which is saving them a ton of money.
LMT is a dividend payer with potential to have some stock price appreciation. I own it.
HDV and PFF are ETFs focused on Dividend payments. The only downside to PFF is the net fee is like 0.39%. So it effective pays about 4.5% a year. HDV is only about 0.08% fee.
IBM is dying a very slow death due to pisspoor managment. It makes a ton of free cash but its shrinking revenue. Perhaps one day someone turns it araound. Its probably a safe bet for the next 5-10 years at least with a beast dividend thats safe.
PM - If smoking isnt anathema to you, PM is a solid stock with a high end dividend.
PG and KMB are long haul investments. I own them. Not the best dividend, but they still grow revenue so there is some stock appreciation to be had.
MCD, CVS, GD are good and solid, their stock price has run up so their dividend yield is lower than most would find attractive.
ED is an electric utility. Protected as a state utility, its a nice safe dividend payer.
 
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Tmac

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I started with a dividend portfolio. I manage my mom's investments and its still dividend heavy due to her age and where she is in the life cycle.

Things to understand...


Read up on the terms value and growth if they are unfamiliar to you.

Quoting one of my previous posts on the subject..


Dividend stocks definitely have a place in any portfolio. Many investors have never seen a multi-year long bear market. A 4% dividend yield when the S&P 500 is -10% for the year is pretty amazing.

Dividend Stocks I like/Own/Have Owned:
ABBV - 4.87%
KO - 3.29%
PG - 2.45%
KMB - 3.45%
T - 7.23%
LMT - 3.08%
GD - 2.76%
HDV (ETF) - 3.96%
PM - 5.58%
MCD - 2.44%
CVS - 2.74%
IBM - 5.35%
ED - 4.35%
PFF (ETF) - 4.80%


Note these dividend yields are as of today's close. The market is at near highs so some of these yields aren't at a spot where I might buy them today. Some of the factors to consider with dividend stocks is their free cash flow and their free cash flow to dividend payout ratio. This tells you if the payout will be sustainable over the long haul.

If stonks are at an all time high, doesn’t that mean contraction is nigh and getting into dividend stocks early is a play?
 

Blazin

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If stonks are at an all time high, doesn’t that mean contraction is nigh and getting into dividend stocks early is a play?

Stocks spend much of their time near an all time high during bull markets. Being near one isn't a reason to run away, strength begets strength highs lead to new highs. In a bull trend you actually become more concerned when the ATH is getting further in the rear view mirror and you have stopped making new ones and moving averages are flattening or beginning to roll over.

However, there is another dynamic at play that makes dividend stocks interesting and that is rising interest rates. High growth stocks are hurt more by rising rates while value plays become more attractive.
 
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Furry

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If stonks are at an all time high, doesn’t that mean contraction is nigh and getting into dividend stocks early is a play?
?? Maybe??
I think any reasonable plan should be diverse. If you put all your apples in one bag you can get burned if your idea of the market is wrong. I hold a couple high dividend etfs. It’s about 2% of my holdings, and my other etfs certainly have their share of dividend companies. I might up it in the right circumstance, but generally I think a dividend play is best for those in or close to retirement. I’ve always approached the market with mentality of not losing, rather than trying to win big. Dividend stocks can be pretty solid in that regard.
 
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Sanrith Descartes

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If stonks are at an all time high, doesn’t that mean contraction is nigh and getting into dividend stocks early is a play?
Its about the individual stock in play. Remember the dividend yield is based on your purchase price. It doesn't change. If you buy XOM tomorrow at a 7% dividend yield and the next day it plunges 30% and its dividend yield balloons to 11%, that doesnt impact you. Your yield is still 7% because its based on what you paid for the stock. The market is at all-time highs but T and VZ are in the toilet which is why their dividend yields are so tasty. Alas, there is a reason their stock prices are in the toilet. Dividend investing is a different mindset from growth investing.
 
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TheBeagle

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There are lots of other stonks with dividends at 10%+, why don't you ever see those in people's portfolios? Lots of them are oil and gas like Exxon (7%) and Sunoco (10%) so i get that the industry is in decline and not sustainable, but what about all these capital companies that are paying 10-13%? A few that I looked at have been paying awhile and don't seem to be in decline. What am I missing here?
Examples:
TCPC - 9.95%
BCSF - 10.3%
IEP - 13.4%
 

Sanrith Descartes

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There are lots of other stonks with dividends at 10%+, why don't you ever see those in people's portfolios? Lots of them are oil and gas like Exxon (7%) and Sunoco (10%) so i get that the industry is in decline and not sustainable, but what about all these capital companies that are paying 10-13%? A few that I looked at have been paying awhile and don't seem to be in decline. What am I missing here?
Examples:
TCPC - 9.95%
BCSF - 10.3%
IEP - 13.4%

For me its about dividend sustainability and the company not cutting the dividend. Pre-Coronachan, a dividend above 4 or 5% was a warning sign. Bear in midn you have oil majors borrowing money to keep paying that dividend with oil prices in the tank. Ideally you want a dividend to free cash of about 50% or less to feel good its sustainable in the long term.

I looked at all those companies. 1 of them has negative cash flow and the other two the dividends are near to exceeding their cash flow.
 
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Blazin

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There are lots of other stonks with dividends at 10%+, why don't you ever see those in people's portfolios? Lots of them are oil and gas like Exxon (7%) and Sunoco (10%) so i get that the industry is in decline and not sustainable, but what about all these capital companies that are paying 10-13%? A few that I looked at have been paying awhile and don't seem to be in decline. What am I missing here?
Examples:
TCPC - 9.95%
BCSF - 10.3%
IEP - 13.4%

A high yield is a warning sign that it carries substantial risk to obtain, either the risk of div cut (market believes it to be unsustainable) or the threat of capital deprecation is significant enough to warrant caution. I won't invest in any stock that is over 8% yield.
 

TheBeagle

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So just dump the stock when they cut the dividend and move on to another one? With quarterly dividends it seems like you should be able to move fairly quickly from one to the next.
 
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Sanrith Descartes

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So just dump the stock when they cut the dividend and move on to another one? With quarterly dividends it seems like you should be able to move fairly quickly from one to the next.
Well, yeah. But you wont be the only one with that idea. And big institutional investors will get their shares dumped long before you know about the dividend cut. Since value stocks tend to have very little stock appreciation, you could lose years of dividend gains in the stock price loss you eat when its announced.
 
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Blazin

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Lots of real estate I'm wary of but a possible REIT/Technology play is Digital Realty Trust (DLR) . They are a data center REIT sold off today on what was a pretty solid quarter. Pays 3.09% Div and room for capital growth.

I'm Long DLR
 
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Sanrith Descartes

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Lots of real estate I'm wary of but a possible REIT/Technology play is Digital Realty Trust (DLR) . They are a data center REIT sold off today on what was a pretty solid quarter. Pays 3.09% Div and room for capital growth.

I'm Long DLR
I sniffed around them early last year but never pulled the trigger. I honesly cant remember what turned me off of them.
 

Blazin

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CONE is another one that is similar. They fit the the theme of strong secular tail winds but are not at their highs.
 

Wingz

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Mine have served me well so far. When I take profits on other plays I take about 20% and put them into one of these.
T
MRCC
STAG
ADP
CSWC
RF