Time to get that Dividend Portfolio in Place

“The time to buy is when there is blood in the streets.”

This quote is attributable to Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family.  Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon.

Right now there is blood in the streets.   

“Be fearful when others are greedy, and greedy when others are fearful,” said Warren Buffett.  I talked about how Mr. Buffett was stockpiling cash waiting for the right time to buy.  See here.  Buffett is probably starting to buy right now.

Index funds tied to large indices do not work right now.  Index funds are indiscriminate buyers of company stock, holding companies based on market cap without regard to their cash flow or balance sheets. Some of these companies will suffer greatly over the next few quarters without the cash or equity to come out intact and stronger after end of this crisis.

I cannot outthink the Wall Street computers so I am not day trading or trying to reap great profits from the volatility.  I am a long-term buyer of good companies – a value investor.

Stocks tend to go down faster than other assets so you can assume a greater degree of the price discovery that is going on with all assets has already occurred with stocks.  Therefore, it is probably not the time to be buying other assets right now if we are truly heading into a longer-term recession.  That will be down the road when those assets have dropped in price.

So I am building my dividend portfolio – one stock at a time with the cash I have saved. I have talked about the benefits of a dividend portfolio as part of your investment approach to financial independence.   I expect losses this year from the purchases I am making but I am buying industry leading companies with solid balance sheets that pay dividends.  Dividend yields for these types of companies have gone up a lot in the past month.

I thought I would give some insight into the stocks I am buying right now and what I expect my dividend portfolio to look like a few months from now.  You should do your own homework on the stocks you find attractive but I think it is a good time to begin to build your dividend portfolio and the accompanying income stream that will come from dividends.  Dividend yields are approaching some historically high levels for some pretty great companies.

Here’s my list of dividend stocks I am starting to buy.

Defensive Stocks with Outrageous Dividend Yields

Stock	Current Dividend Yield	Dividend History
Phillip Morris (PM)	7.6%	One year ago the yield was at 5.1%; has been paying a growing dividend for years
Coca Cola (KO)	4.2%	Has paid a growing dividend for 57 years; its yield is usually about 3%
Archer Daniels Midland (ADM)	4.7%	This dividend aristocrat usually pays a dividend yield closer to 3%.

People are going to still eat food, smoke cigarettes and buy Coca-Cola absent people becoming zombies due to COVID-19.  That is why I am buying Coca-Cola, Phillip Morris, and Archer Daniels Midland as defensive stocks for my dividend portfolio.  These businesses have been shown to be very recession-resistant and cash cows.  Coca-Cola just got hammered last week because it will see a drop in sales due to things like restaurants and movie theatres being closed for the next month or two but its dividend yield is above 4% for the first time this decade.  It has never reduced its dividend in the last 57 years.  Phillip Morris has a dividend yield approaching 8% even though it should not see much of a decrease in revenues from this crisis.   Archer Daniels Midland’s dividend yield is approaching 5% when its average dividend yield over the last 10 years has been closer to 3%.

The dividend yields for these stocks will eventually revert to their historical levels when things calm down and at that time their stock prices will go up.  In the meantime I will be collecting pretty secure dividends on a quarterly basis.

These positions will be about 5-10% of my dividend portfolio when my funds are fully allocated.

Boring Telecom Stocks with Juicy Yields and 5G Upside

Stock	Current Dividend Yield	Dividend History
Verizon (VZ)	4.7%	One year ago the yield was at 5.1%; has been paying a growing dividend for years
AT&T (T)	7.3%	It’s a dividend aristocrat that has never been above 7% yield in the last 20 years.

Verizon has a lot of potential upside when 5G networks are rolled out over the next few years.  Most people expected this rollout to really begin to take place this year but now it will likely be delayed.  No one is talking about the end of 5G just a delay in its rollout.  The current dividend yield for Verizon is approaching 5% after seeing its stock price drop almost 20% since February.  I am only picking up shares when the stock goes below $50 per share.

AT&T is a dividend aristocrat that is currently yielding over 7%.  Its yield has never been above 7% during the last 20 years.  There is a bit more risk to AT&T’s dividend due to the debt it took on when it purchased Time Warner but it will take something drastic for AT&T to reduce its dividend.  I do not expect it to happen and AT&T with a 7% yield is unheard of. 

These positions will probably be about 10% of my dividend portfolio when my funds are fully allocated.

Industrial Stocks That Will Eventually Rebound

Stock	Current Dividend Yield	Dividend History
PPG	2.6%	This stock has paid quarterly dividends without interruption for 30 years.
Caterpillar (CAT)	4.3%	It’s a dividend aristocrat that had a yield below 2.5% one year ago.
John Deere (DE)	2.7%	This yield has consistently been below 2% over the last five years.
Genuine Parts (GPC)	5.7%	The last time the yield got this high was the Great Recession of 2008

PPG manufactures and distributes a range of coatings and specialty materials. Think Glidden paint.  It has a duopoly with Sherwin Williams and it has been ten years since its dividend yield has gotten this high.  Caterpillar is one of the dividend aristocrats (i.e., paid increasing dividends for at least 25 years) whose stock price suffers in a recession but it keeps paying its dividend until the next upswing.  Caterpillar’s stock price is down 40% since February.  John Deere has huge upside with the world’s long-term need to continue to get greater productivity from the shrinking amount of farmland.  I was not going to buy John Deere when it had a dividend yield below 2%.  I am starting to buy it now that the yield is approaching 3%.  Think Napa Valley Auto Parts when I mention Genuine Parts.  Genuine Parts is another dividend aristocrat that has steadily grown its dividend over its 31 year operating history and we haven’t seen its dividend yield get above 5% since 2008-2009.  These companies hold their dividend payments near and dear to their heart so it will take a lot for any of them to reduce their dividend payments.

These positions will probably be about 10% of my dividend portfolio when my funds are fully allocated.

Healthcare Stocks

Stock	Current Dividend Yield	Dividend History
Abbvie (ABBV)	6.9%	This stock has paid quarterly dividends without interruption for 30 years.
Cardinal Health (CAH)	4.3%	It’s a dividend aristocrat that had a yield below 2.5% one year ago.

ABBV has some exposure because its blockbuster drug, Humira, is beginning to lose patent protection and it will lose patent protection in the United States in 2023.  However, ABBV has a solid drug pipeline in place, some good drug candidates in clinical trials, and it about to close its merger with Allergan where it will acquire the Botox drug and some other solid drugs.   The 6.9% yield is secure for at least the next several years and this company has real upside potential.  CAH is one of the largest drug distribution companies in the country.  It has actually held up fairly well during this crisis due to its role in administering test kits (and probably any future vaccines) but for much of the last five years its dividend yield was below 3%.   I may rotate out of this stock at some point but I do not have a winning replacement stock just yet.

These positions will probably be about 5-10% of my dividend portfolio when my funds are fully allocated.

Banks with Great Yields – They are Better Positioned Than 2008

Stock	Current Dividend Yield	Dividend History
Wells Fargo (WFC)	7.7%	The banks cut their dividends in 2008 but are unlikely to do so this time as their balance sheets are much stronger now.
Bank of America (BAC)	3.7%
US Bank (USB)	5.2%

The banks are going to be part of the solution and not part of the problem this time around. 

Wells Fargo has a dividend yield higher than its yield during the financial crisis.  I know it has had some issues but it is on solid financial footing and it is not going anywhere.  I’ll collect this fat yield until it rebounds in the next few years.   Bank of America is Warren Buffett’s favorite bank and hasn’t seen a dividend yield this high in 10+ years.  US Bank is a strong regional bank that had a dividend yield close to 3% for the last five years.  Its dividend yield is now over 5%.    These three banks all have some of the strongest balance sheets in the banking industry and have consistently passed the government’s stress tests put in place after 2008.

These positions will probably be about 7-8% of my dividend portfolio when my funds are fully allocated.

The Highest Quality Energy Companies for Current High Yield and Potential Upside

Stock	Current Dividend Yield	Dividend History
Exxon (XOM)	10%	These stocks are getting crushed due to supply and demand issues but I believe the strongest will survive with dividends intact.
Chevron (CVX)	9%
Enterprise Products (EPD)	13%
Energy Transfer (ET)	23.2%

This industry is not for the faint of heart.  It has been getting killed during the last decade and it has the extra pressure of an oil war between Russia and Saudi Arabia. 

That being said, these companies I am buying are well positioned to survive this crisis, buy the assets of weaker players that need help to survive, and come out even more dominant when things get back to normal.  XOM is a dividend aristocrat, trading at 20 years lows, and yielding over 10%!  CVX, considered even more financially conservative than XOM due to its lower capital spending plans, is also a dividend aristocrat and is yielding almost 9%!  Beware- even these companies cannot keep their dividends if oil stays near $20 per barrel for a long time but I do not expect that to happen as people will begin to fly again and the Russians and Saudis cannot keep their people happy with oil prices this long. 

 Oil pipeline infrastructure companies are less exposed to oil prices and that is what EPD and ET do for the industry.  The demand for oil is really bad right now but these companies have consistently paid their quarterly dividends during the worst of times and their management has been buying a lot of their stock at these prices.  They have longer-term contracts with their customers and this provides additional insulation from short-term issues.  I believe these companies will hold on to their dividends and with EPD having a yield of 13% and ET having a yield of 23% I am willing to take the risk here.  These companies are not going anywhere and if they have to cut the dividends in the short-term they will reinstate them sooner rather than later.  Insiders, who have significant positions with these companies, will not be happy if dividends are cut.

These positions will probably be about 10-15% of my dividend portfolio when my funds are fully allocated.

Big Real Estate Players with Strong Balance Sheets and High Yields

Stock	Current Dividend Yield	Dividend History
Equity Residential	4.4%	The fear of residential and commercial tenants being unable to pay rents has driven these stocks down.  Retail REITs, already under some pressure from the Amazon effect, are getting killed.
Realty Income (O)	5.9%
Simon Property Group (SPG)	17.5%

I love real estate and I wish I owned more of it.  I have written an article on the different ways to own real estate and one such way is through REITS.  I am adding three REITs to my dividend portfolio.  Equity Residential owns multi-family units and has seen its yield go from around 3% over the past five years to 4.4%.  Equity Residential has a quality portfolio and its dividend should be able to withstand any short term issues with collections.  Realty Income is a triple-net REIT that owns retail spaces that it rents to credit tenants such as Walgreens.    5.9% is a high yield for this company and it has made 90 consecutive quarterly dividend hikes.  Simon Property Group owns malls and mall-owning REITs have been absolutely crushed.  However, SPG was doing really well operationally before the COVID-19 crisis and it has a stellar balance sheet and a pristine credit rating.  At a 17.5% dividend yield I am willing to take a risk on this best of breed stock.

These positions will probably be about 7-8% of my dividend portfolio when my funds are fully allocated.

Cash Flush Big Tech to Get Hyper-Growth When This Thing Eventually Turns Around

Stock	Current Dividend Yield	Dividend History
Apple (AAPL)	1.3%	I am not buying any of these stocks/ETFs for their dividend but I think the tech sector will be the first to recover and these cash rich companies will be able to take advantage once we get to the other side.
Microsoft (MSFT)	1.5%
Intel (INTC)	2.9%
Qualcom (QCOM)	4.1%
TQQQ	0.07%

I have wanted to own these tech stocks for a while and they have gone down along with everything else.  I believe these stocks will be some of the first to rebound with their long-term prospects being as solid as ever and their cash war chests as full as ever.

I would love to add Amazon and Google to my portfolio but one share costs in excess of $1,000 per share so these are too rich for me to own.  I am going to add TQQQ, an ETF that is tech heavy and levered to perform 3X what QQQ does on any given day.  This ETF was at $118 per share in February and it has dropped all the way down to $34 per share.  I am beginning to add this ETF to my portfolio in very small increments but I will be adding more of it once it gets before $30 per share.  This is a high risk ETF with leverage so make sure to be prepared for some major volatility over the next few months if you own it.

These positions will probably be about 30% of my dividend portfolio when my funds are fully allocated.

Taking a Small Flier on the Travel and Leisure Sector

Stock	Current Dividend Yield	Dividend History
Disney (DIS)	2.1%	It doesn’t matter right now.
Delta (DAL)	Suspended

I have bought Disney and Delta recently.  I think Disney is a great company that will be back above $100 per share by next year.  Disney streaming should be another strong revenue generator for the company and its resorts, hotels and cruise lines will recover.  Its movie franchises will continue to deliver.  Delta is the strongest of the airlines from a financial perspective and I think its stock will recover in 12-24 months.  We are a global economy and we will fly again.  The low price of oil will lead to greater profitability once people start flying again. 

These positions will probably be about 5-10% of my dividend portfolio when my funds are fully allocated.

I am not saying these are the stocks to own – a lot of companies are on sale right now – but I wanted to write this article to get you thinking about creating that dividend portfolio when there is blood in the streets and everyone is afraid.

Stay safe.