V - 10 Picks For A Balanced Dividend Income And Dividend Growth Portfolio

Summary

• In this article I will show you 8 companies and 2 ETFs to help you build a balanced portfolio consisting of Dividend Income and Dividend Growth.
• Assuming that you were to invest equally in each of the picks, you would achieve an Average Dividend Yield [TTM] of 2.94%.
• The presented companies have shown an attractive Average Dividend Growth Rate of 9.41% over the past 5 years.
• I consider each of the 10 picks to be appealing when considering risk and reward.

Investment Thesis

When building an investment portfolio, different metrics should be taken into consideration. This is particularly the case when aiming to create an investment portfolio which allows you to steadily increase your wealth over time to generate an additional income in the form of dividends and, at the same time, that the dividends increase year over year. This kind of strategy allows you to generate an important amount of extra income for retirement.

Last week, I wrote an article titled "How To Allocate $10,000 Among 10 Dividend Income And Dividend Growth Stocks." After receiving very valuable feedback from the Seeking Alpha readers about that article, I have taken into consideration this feedback in order to build an additional investment portfolio aimed to combine Dividend Income and Dividend Growth.

One important factor that was pointed out by some of the Seeking Alpha Readers was that the combination of Dividend Income and Dividend Growth could also be achieved by investing in exchange-traded funds ("ETFs"). For this reason, in this portfolio, I have included two ETFs that I consider to be particularly attractive.

If you are wondering why you should not only aim to achieve this mixture between Dividend Income and Dividend Growth via the investment in ETFs: from my point of view, the additional selection of individual stocks provides you with much more flexibility and individuality in order to achieve your individual long-term investment goals.

I have created this investment portfolio with the objective to help you get a good starting base in order to achieve an attractive Dividend Yield while increasing the Dividend over time.

Through the composition of the portfolio, consisting of 10 picks, you can already achieve an Average Dividend Yield of 2.94%. At the same time, the picks have shown an Average Dividend Growth Rate of 9.41% over the past 5 Years, indicating that you can expect an attractive future Dividend Growth Rate. At the same time, I consider each pick to be appealing when it comes to risk and reward.

These are the 10 picks I have selected for you in order to achieve an attractive mix between Dividend Yield and Dividend Growth:

• Allianz (ALIZF)
• Apple (NASDAQ: AAPL )
• BlackRock (NYSE: BLK )
• DVY iShares Select Dividend ETF (NASDAQ: DVY )
• Johnson & Johnson (NYSE: JNJ )
• Realty Income (NYSE: O )
• Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD )
• Starbucks (NASDAQ: SBUX )
• Unilever (NYSE: UL )
• Visa (NYSE: V ).

Allianz

Allianz is one of the world’s largest insurance companies, and I consider it to be particularly attractive as it already pays a Dividend Yield [TTM] of 5.45% today, and, at the same time, has shown an Average Dividend Growth Rate of 6.37% over the past 5 years. Both are strong indicators that the company provides investors with an attractive mix between Dividend Income and Dividend Growth.

Additionally, with a Free Cash Flow per share [TTM] of $14.36 and a stock price of $208.35, the company currently has a Free Cash Flow Yield [TTM] of 6.89%, which strengthens my theory to consider it as an appealing choice when it comes to risk and reward.

The company’s Average EBIT Growth Rate [FWD] of 4.20% over the past 5 years further strengthens my belief that Allianz is on track in terms of Growth.

Apple

Apple is part of this portfolio due to the fact that I continue to see the company as a very attractive investment in relation to risk and reward.

The company has a very wide economic moat (its strong brand value, loyal customers, own ecosystem and diversified product portfolio all contribute to this).

I do not agree with those who claim that the Apple stock is not attractive in terms of Valuation: considering Apple’s current P/E [FWD] Ratio of 21.98, it can be highlighted that it is in line with its Average P/E Ratio over the past 5 years (which is 22.94). You can take a closer look at Apple’s Valuation in my detailed analysis on the company .

Observing the company’s EBIT Margin [TTM] of 30.29%, we can furthermore see that it is 357.37% above the sector median (which is 6.62%). At the same time, Apple’s current EBIT Margin is 12.72% above its Average EBIT [TTM] Margin of the past 5 years (26.87%), which demonstrates that the company has managed to increase its profitability over the past years.

The graphic below clearly demonstrates that Apple has managed to outperform the S&P 500 over the past 5 years.

Even if it is true that past results do not allow any direct conclusions to be drawn about the future, I still believe that Apple's brand strength, its enormous financial power and customer loyalty can contribute to the company being able to outperform the broader stock market in the years to come.

BlackRock

BlackRock is the largest asset manager in the world and provides investors with an excellent mix between Dividend Yield and Dividend Growth. At this moment in time, BlackRock provides investors with a Dividend Yield [FWD] of 2.79%. I consider the company to be a great choice in terms of risk and reward, making it the ideal selection to be part of this investment portfolio.

Below we can see that BlackRock has managed to outperform the S&P 500 over the past 10 Years and I’m confident that the company will continue to do so in the future.

BlackRock has an EBIT [TTM] Margin of 37.55%, proving evidence that the company has a very strong competitive position when compared to its competitors.

In addition to that, I think that BlackRock is currently fairly valued. Proof of this is the company’s P/E [FWD] Ratio of 20.88, which is in line with its Average P/E [FWD] Ratio over the past 5 years (19.13).

Johnson & Johnson

I consider Johnson & Johnson to be an excellent pick for any investment portfolio. From my point of view, the company not only provides an attractive mix between Dividend Income (its Dividend Yield [FWD] is 2.57%) and Dividend Growth (due to its low Payout Ratio of 44.06% and its Average Dividend Growth Rate of 6.03% over the past 5 Years), but it also contributes to reducing the volatility of your investment portfolio.

Johnson & Johnson’s 60M Beta of 0.57 is a strong indicator that you can reduce the volatility of your investment portfolio by adding the company to it. The company’s 24M Beta of 0.35 once again underlines this theory.

Furthermore, Johnson & Johnson has very strong financials. This is illustrated by its Aaa credit rating by Moody’s. Along with Apple and Microsoft (NASDAQ: MSFT ), Johnson & Johnson is the only company with an Aaa credit rating, thus reinforcing its strong financials.

Additionally, it has a high EBIT Margin of 26.00%, which is an indicator of the company’s strong competitive position within the Pharmaceuticals Industry.

My opinion to consider the company’s dividend to be attractive, is underlined by the Seeking Alpha Dividend Grades: Johnson & Johnson receives an A+ rating for Dividend Growth and for Dividend Consistency. For Dividend Yield, it gets a B+, and for Dividend Safety, a B-. These ratings strengthen my belief that Johnson & Johnson is an excellent pick for an investment portfolio that combines Dividend Income with Dividend Growth.

Realty Income

Realty Income is a great selection for this type of investment portfolio which aims to combine Dividend Income with Dividend Growth. Proof of this is the company’s current Dividend Yield [FWD] of 4.70%. Furthermore, its Average Dividend Growth Rate of 3.93% over the past 5 years shows us that the company can, at the same time, contribute to the Dividend Growth of your investment portfolio. The fact that it has been able to grow its Dividend over the past 25 years underlines this theory.

The company’s EBIT [TTM] Margin of 39.46% provides further evidence of its strong competitive position.

My opinion to select Realty Income for this investment portfolio is strengthened by the rating of the Seeking Alpha Authors, the Wall Street and the Seeking Alpha Quant Rating. All of which confirm that the company is currently rated with a buy.

Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF

I consider the Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF to be an excellent pick for this portfolio that aims to combine Dividend Income with Dividend Growth. The reason being that this ETF provides us with a Dividend Yield [TTM] of 3.42%, which is 58.35% higher than the Median of all ETFs (2.16%).

In addition to that, it has shown a Dividend Growth Rate [CAGR] of 12.20% over the past 10 years. This is 99.13% higher than the Median of all ETFs (6.13%).

Due to the broad diversification of this ETF in combination with its attractive Dividend Yield and its high Dividend Growth Rate over the last 10 years, I see this ETF as an excellent choice when it comes to risk and reward.

My opinion to make this ETF part of the portfolio is underlined by the strong ratings from the Seeking Alpha ETF Grades. This ETF is rated with an A+ in terms of Momentum, Expenses and Dividends. Furthermore, it is rated with an A for Asset Flows and B+ for Risk.

Starbucks

Although I agree with those who claim that the Starbucks stock is currently not particularly cheap, the company shows a P/E [FWD] Ratio of 29.46, which is still 21.32% below its Average P/E [FWD] Ratio of the past 5 years (37.44).

The company has shown an Average Dividend Growth Rate of 13.75% over the past 5 years and has raised its dividend over the past 12 Years. These are strong indicators that show us that Starbucks should be able to contribute to the Dividend Growth of your investment portfolio. Furthermore, the company’s Payout Ratio of 67.57% demonstrates that it has scope in order to continue to raise its dividend over the next years.

In addition to that, we can look at several factors showing that Starbucks is on track when it comes to Growth: the company has shown an Average EBIT Growth Rate [FWD] of 12.68% and an Average EPS Diluted Growth Rate [FWD] of 17.6% over the past 5 years. Both underline that the company has been able to grow its earnings significantly. This is also confirmed by an Average Free Cash Flow Per Share Growth Rate [FWD] of 42.21% over the past 5 years.

Starbucks' EBIT Margin of 13.78%, which is 74.62% above the sector median (with an EBIT Margin of 7.89%), further underlines the company’s excellent competitive position and reflects the enormous brand value it has managed to build over the last decade.

Unilever

Unilever is part of this portfolio, because similar to Johnson & Johnson, the company is able to combine Dividend Income and Dividend Growth and, at the same time, reduce the volatility of your investment portfolio.

Unilever currently pays a Dividend Yield [FWD] of 3.35% and has shown an Average Dividend Growth Rate of 2.85% over the past 5 years. Although it is true that you cannot expect high capital gains with an investment in Unilever, selecting a company like it is important for any investment portfolio in order to help reduce volatility. This may also help you sleep better when the next stock market crash occurs. The Unilever position will contribute to the fact that your portfolio decreases less. Proof of this is the company’s low 60M Beta of 0.14 as well as its 24M Beta of 0.12.

A company that could help you to achieve a similar effect (reducing the volatility of your investment portfolio) would be Procter & Gamble (NYSE: PG ). Evidence of this is its 60M Beta of 0.42 and its 24M Beta of 0.60. However, at this moment, Unilever shows a higher Dividend Yield (3.35% compared to 2.43%) making it the more suitable choice for this portfolio.

Visa

Visa is one of the largest positions of my own investment portfolio and I consider the company an ideal choice for this portfolio that seeks to combine Dividend Income with Dividend Growth. This is based on several factors: I consider Visa’s Valuation to currently be extremely attractive due to its P/E [FWD] Ratio of 25.34, which is 21.87% below its P/E [FWD] Ratio of the past 5 years (32.43). In my opinion, this is a strong indicator to include the company in this portfolio.

At this moment in time, I consider Visa to be more attractive than its competitor Mastercard (NYSE: MA ), particularly due to its lower Valuation. Mastercard currently shows a P/E [FWD] Ratio of 34.06. In addition to that, at the time of writing, Visa’s P/E [FWD] Ratio is currently lower than that of PayPal (NASDAQ: PYPL ) (32.72).

Visa's Dividend Growth Rate [CAGR] of 20.33% over the last 10 years, provides us with further evidence that the company should be an excellent pick for dividend growth investors. This is further underlined by the company’s Average EPS Diluted Growth Rate [FWD] of 16.28% over the past 5 years.

The graphic below shows that Visa has been able to significantly outperform the S&P 500 over the past 10 years. Due to the company’s strong competitive advantages (which is also underlined by its high EBIT Margin of 67.42%) and its excellent growth perspectives, I think that Visa could be able to do so over the next decade.

DVY iShares Select Dividend ETF

Another ETF which I consider to be very appealing for this portfolio is the DVY iShares Select Dividend ETF: it provides us with a Dividend Yield [TTM] of 3.48%, which is 60.17% above the Median of all ETFs (2.16%). Furthermore, its Dividend Growth Rate [CAGR] of 6.92% is 10.41% above the sector median. Furthermore, it has shown 18 Consecutive Years of Dividend Payments.

The Seeking Alpha ETF Grades confirm that this ETF should be an excellent choice: it is rated with an A for Momentum and for Dividends. At the same time, it is rated with a B+ for Risk and with a B for Asset Flows. For Expenses, it is rated with a C+.

In addition to the above, it can be highlighted that its 60M Beta of 0.90 and its 24M Beta of 0.74 are indicators showing that the risk of investing in this ETF is lower than that of investing in the broad stock market. It also suggests that having this ETF in your investment portfolio will contribute to reducing portfolio volatility.

Overview of the 10 selected picks

Source: Seeking Alpha

Conclusion

I believe that selecting these 8 companies and 2 ETFs is not only attractive in order to seek a balanced mix between Dividend Income and Dividend Growth, but I also see it being appealing in regards to risk and reward.

Some of the companies / ETFs that I have selected aim to predominantly provide your investment portfolio with Dividend Growth (such as Visa, Starbucks and BlackRock), while others with attractive Dividend Income (such as Allianz, Unilever, Realty Income and DVY).

The balanced combination of these companies and ETFs makes it possible to receive an attractive Dividend Yield today (the portfolio shows a Dividend Yield [TTM] of 2.94%) and, at the same time, you can aim to increase this dividend from year to year (the Average Dividend Growth Rate of the selected companies / ETFs is 9.41% over the past 5 years).

This strategy allows you to generate an additional income today and even more so in the future. At the same time, it should help to direct your investment focus on the dividend as well as on dividend growth in order to help you care less about the ups and downs of the broad stock market.

Author’s Note: Thank you very much for reading and I would appreciate any feedback on this article!

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