2023-09-26 17:00:25 ET
Summary
- The Dividend Income Accelerator Portfolio is a robust choice for long-term investing, providing reduced risk and a mix of dividend income and dividend growth.
- The portfolio is diversified across sectors, industries, and countries, with a Weighted Average Dividend Yield [TTM] of 3.89% and a 5-Year Weighted Average Dividend Growth Rate of 11.76%.
- The current holdings include SCHD, Realty Income, Philip Morris, and Royal Bank of Canada, with plans to add more companies to further reduce risk.
Investment Thesis
I initiated the construction of The Dividend Income Accelerator Portfolio at the beginning of September 2023. Even though the portfolio so far only consists of 4 picks (Schwab U.S. Dividend Equity ETF ( SCHD ), Realty Income ( O ), Philip Morris ( PM ) and Royal Bank of Canada ( RY ), I already see it as a robust choice for navigating different market conditions, thus making it an excellent buy and hold portfolio when investing with a long investment horizon.
The Dividend Income Accelerator Portfolio already provides you with a reduced risk level due to its broad diversification over Sectors and Industries and its inclusion of companies with a 60M Beta Factor below 1.
Moreover, the portfolio offers you a Weighted Average Dividend Yield [TTM] of 3.89% while boasting a 5 Year Weighted Average Dividend Growth Rate [CAGR] of 11.76%.
These numbers underscore the portfolio's ability to provide you with an attractive mix between dividend income and dividend growth, thus helping you to generate income via dividends while increasing this amount annually.
In this analysis, I will demonstrate why I believe The Dividend Income Accelerator Portfolio comes attached to a reduced risk level. I will dive deeper into the portfolio's diversification over Sectors and Industries.
Furthermore, I'll also show you which risk factors you need to be aware of when implementing the investment approach of The Dividend Income Accelerator Portfolio.
The Dividend Income Accelerator Portfolio
The Dividend Income Accelerator Portfolio's objective is the generation of income via dividend payments, and to annually raise this sum. In addition to that, its goal is to attain an appealing Total Return when investing with a reduced risk level over the long term.
The Dividend Income Accelerator Portfolio's reduced risk level will be reached due to the portfolio's broad diversification over sectors and industries and the inclusion of companies with a low Beta Factor.
Below you can find the characteristics of The Dividend Income Accelerator Portfolio:
- Attractive Weighted Average Dividend Yield [TTM].
- Attractive Weighted Average Dividend Growth Rate [CAGR] 5-Year.
- Relatively low Volatility.
- Relatively low risk level.
- Attractive expected reward in the form of the expected compound annual rate of return.
- Diversification over asset classes.
- Diversification over sectors.
- Diversification over industries.
- Diversification over countries.
- Buy-and-Hold suitability.
The Selected Picks of The Dividend Income Accelerator Portfolio
As for today, the following ETFs / companies are part of The Dividend Income Accelerator Portfolio:
- Schwab U.S. Dividend Equity ETF.
- Realty Income.
- Philip Morris.
- Royal Bank of Canada.
The first acquisition for The Dividend Income Accelerator Portfolio was the Schwab U.S. Dividend Equity ETF (currently representing 76.3% of the overall portfolio). The idea behind this selection was to provide investors with a broad diversification over sectors and industries from the start. At the same time, its selection helped to reach a reduced risk level while aspiring for an attractive Total Return.
The second acquisition for the portfolio was Realty Income (currently representing 7.7% of the overall portfolio), in order to provide investors with an even broader diversification (since SCHD is not invested in REITs) and to raise the portfolio's Weighted Average Dividend Yield [TTM]. Realty Income's current P/AFFO [FWD] Ratio of 12.92 stands 3.75% below the Sector Median, indicating that it is undervalued.
The third and fourth buy for The Dividend Income Accelerator Portfolio were Philip Morris (representing 8.1% of the portfolio) and Royal Bank of Canada (representing 7.9%) respectively. Both of which helped us to increase the Weighted Average Dividend Yield [TTM] while also contributing to reducing the portfolio's risk level. Philip Morris' P/E [FWD] Ratio currently stands at 17.10 , which is 8.13% below the Sector Median, indicating that it is undervalued. Royal Bank of Canada's P/E [FWD] Ratio of 11.69 is 1.26% below its Average from the past 5 years, suggesting that it is at least fairly valued.
As of today, the portfolio's Weighted Average Dividend Yield [TTM] stands at 3.89% while its Weighted Average Dividend Growth Rate [CAGR] is 11.76%. Combined they serve as an indicator that the portfolio can help you to mix dividend income with dividend growth.
The Dividend Income Accelerator Portfolio's Diversification over ETFs and Companies
The graphic below illustrates that the largest proportion of The Dividend Income Accelerator Portfolio is currently represented by SCHD (accounting for 76.3%).
The second largest position is Philip Morris, which makes up 8.1% of the overall portfolio, followed by Royal Bank of Canada (accounting for 7.9%), and Realty Income (7.7%).
I believe that the portfolio has already reached a relatively broad diversification over ETFs and companies, particularly when taking into account that we have only selected 4 picks so far. Each of the individual companies has a percentage of less than 10% of the overall investment portfolio, strengthening my belief that it provides investors with a reduced risk level while combining dividend income and dividend growth.
Over the coming weeks and months, additional companies will be added to The Dividend Income Accelerator Portfolio, helping us to continuously reduce its risk level.
The Dividend Income Accelerator Portfolio's Diversification over Companies when allocating SCHD to the Companies it is actually invested in
Below you can find the 10 largest holdings of The Dividend Income Accelerator Portfolio when allocating SCHD to the companies it is actually invested in.
We can see that when allocating SCHD to the companies it is actually invested in, no individual company has a percentage of more than 10% of the overall investment portfolio. Once again this highlights the portfolio's broad diversification and reduced risk level.
The Dividend Income Accelerator Portfolio's Diversification over Sectors when allocating SCHD to the ETF Sector
In the graphic below you can find The Dividend Income Accelerator Portfolio's Diversification over Sectors when allocating SCHD to the ETF Sector.
The ETF Sector accounts for the largest proportion of the overall portfolio (76.3%).
The Consumer Staples Sector (represented by Philip Morris) makes up 8.1% of the overall investment portfolio and the Financials Sector (represented by Royal Bank of Canada) accounts for 7.9%. The Real Estate Sector (represented by Realty Income) accounts for 7.7%.
No Sector (besides the ETF Sector) accounts for more than 10% of the overall investment portfolio, once again highlighting its broad diversification and reduced risk level.
Source: The Author
The Dividend Income Accelerator Portfolio's Diversification over Sectors when allocating SCHD to the Sectors it is actually invested in
The graphic below shows us The Dividend Income Accelerator Portfolio's Diversification over Sectors when allocating SCHD to the Sectors it is actually invested in.
It can be highlighted that the five largest Sectors are the following:
- Financial Services: 19.55%.
- Consumer Defensive: 17.61%.
- Industrials: 13.40%.
- Health Care: 12.35%.
- Technology: 9.41%.
Even when allocating SCHD to the Sectors it is actually invested in, no Sector represents more than 20% of the overall portfolio, once again underlying the portfolio's broad diversification and reduced risk level.
The Dividend Income Accelerator Portfolio's Diversification over Industries when allocating SCHD to the ETF Industry
The graphic below shows the allocation of The Dividend Income Accelerator Portfolio when allocating SCHD to the ETF Industry: SCHD accounts for 76.3% of the overall portfolio, the Tobacco Industry for 8.1%, the Diversified Banks Industry makes up 7.9% and the Retail REITs Industry accounts for 7.7%.
Source: The Author
Due to the fact that no Industry (besides the ETF Industry) accounts for more than 10% of the overall portfolio, its broad diversification is, once again, underlined.
The Dividend Income Accelerator Portfolio's Geographical Diversification
The majority of ETFs and companies that are part of The Dividend Income Accelerator Portfolio are from the United States. 92.1% of the selected ETFs and companies are from the U.S.
Source: The Author
7.9% of the selected picks are from Canada, making Canada the second most represented country in this portfolio. This underlines that the portfolio has already reached a level of geographical diversification.
The Projected Dividends for The Dividend Income Accelerator Portfolio
The Weighted Average Dividend Yield [TTM] of The Dividend Income Accelerator Portfolio currently stands at 3.89%.
Despite only having four picks so far, since one of them (Realty Income) pays a monthly dividend, we have already generated a monthly dividend income.
The estimated annual dividend income with the current portfolio stands at $50.47. In the table below you can see an estimation for the projected dividend income for the following 12 months.
Position | Sep 23 | Oct 23 | Nov 23 | Dec 23 | Jan 24 | Feb 24 | Mar 24 | Apr 24 | May 24 | Jun 24 | Jul 24 | Aug 24 |
Realty Income | $0.46 | $0.47 | $0.47 | $0.47 | $0.47 | $0.47 | $0.47 | $0.47 | $0.47 | $0.47 | $0.47 | $0.47 |
Philip Morris | $1.37 | $1.37 | $1.37 | $1.37 | ||||||||
Royal Bank of Canada | $1.09 | $1.09 | $1.09 | $1.09 | ||||||||
Schwab U.S. Dividend Equity ETF | $8.75 | $8.75 | $8.75 | $8.75 | ||||||||
$9.21 | $1.84 | $1.56 | $9.22 | $1.84 | $1.56 | $9.22 | $1.84 | $1.56 | $9.22 | $1.84 | $1.56 |
Source: The Dividend Tracker
The Current Risk Level of The Dividend Income Accelerator Portfolio
As mentioned earlier, one of the goals of The Dividend Income Accelerator Portfolio is to provide you with a reduced risk level, helping you to prepare your portfolio to successfully navigate different market conditions.
I have shown that we have already reached a relative broad diversification over Sectors and Industries as well as a geographical diversification.
In addition, it can be highlighted that the dividend paying companies come attached to a lower risk factor than pure growth stocks. The companies' dividends and their relatively low Payout Ratio additionally reduce the downside risk of this portfolio.
Another factor indicating that the risk level of this portfolio is relatively low is that no individual company and no Sector or Industry (besides the ETF Sector and Industry) account for more than 10% of the overall investment portfolio (when allocating SCHD to the ETF Sector and ETF Industry).
However, there are still some risk factors that investors should take into consideration when implementing the investment approach of The Dividend Income Accelerator Portfolio.
One of the main risks that I currently see is the fact that some companies' still account for a relatively high percentage of the overall portfolio. For example, in the case of a dividend cut for Philip Morris, we could see a significant impact on the company's stock price, which could have a significant negative impact on the portfolio's Total Return.
However, it is further worth mentioning that we will additionally decrease the risk level of this portfolio in the following month when adding additional companies to our portfolio. This will help us as each selected company will then account for a lower percentage of the overall investment portfolio. The allocation of SCHD will also decrease as we add more companies to the portfolio. This will reduce the dependence of The Dividend Income Accelerator Portfolio on the performance of SCHD.
Another risk I currently see for The Dividend Income Accelerator Portfolio is the fact that in the short term, stock price fluctuations in the broader stock market will also impact its Total Return. However, it is important to note that we are actively decreasing the portfolio's risk level by including companies with a low Beta Factor (such as Realty Income, Philip Morris and Royal Bank of Canada). This helps reduce the downside risk of the portfolio and to navigate different and changing market conditions.
Furthermore, I would like to mention again that the portfolio is built for the long term. We will continue to implement our long-term and dividend income-focused investment strategy independently from price fluctuations on the broader stock market that will occur in the short term.
Conclusion
At the start of September 2023, I began construction of The Dividend Income Accelerator Portfolio and have transparently shared each step with you here on Seeking Alpha.
Even though The Dividend Income Accelerator Portfolio currently only consists of 4 picks (SCHD, Realty Income, Philip Morris and Royal Bank of Canada), it already provides investors with a reduced risk level due to its broad diversification over ETFs and companies, as well as its diversification over Sectors and Industries.
Each of the individual companies added to the portfolio so far has a Beta Factor below 1, which helps us to additionally reduce the portfolio's volatility and risk level.
The Dividend Income Accelerator Portfolio also offers investors a reduced risk level, since no individual company and no Sector or Industry (besides the ETF Sector and Industry) account for more than 10% of the overall investment portfolio, helping us to additionally limit its downside risk.
At the same time, the portfolio provides investors with an attractive Weighted Average Dividend Yield [TTM] of 3.89% and a 5 Year Weighted Average Dividend Growth Rate [CAGR] of 11.76%. This underscores the portfolio's potential to generate extra income via dividends while facilitating to raise this amount annually.
I believe that the combination between dividend income and dividend growth of The Dividend Income Accelerator Portfolio is attractive for investors.
While The Dividend Income Accelerator Portfolio's Weighted Average Dividend Yield [TTM] and 5 Year Weighted Average Dividend Growth Rate [CAGR] are 3.89% and 11.76% respectively, the same are 1.62% and 1.25% for the iShares MSCI World ETF ( URTH ), 3.73% and 6.24% for the iShares Select Dividend ETF ( DVY ), and 4.09% and 6.32% for iShares Core High Dividend ETF ( HDV ). Even though URTH does not directly focus on dividend income or dividend growth, I think it can serve as a useful indicator of the performance of the global stock market and its Total Return. For these reasons, I have included it in this comparison.
In my opinion, The Dividend Income Accelerator Portfolio provides investors with a superior mix between dividend income and dividend growth compared to investing solely in any of these ETFs. At the same time, it provides investors with a reduced risk level (due to the fact that each of the individual picks that have been included in the portfolio have a 60M Beta Factor below 1).
In the following weeks, we will continue to decrease The Dividend Income Accelerator's risk level by adding companies which I believe are attractive in terms of risk and reward and that can also help you generate a significant amount of extra income via dividends while contributing to steadily increasing your wealth.
Author's Note: Thank you for reading! I would appreciate hearing your opinion on this analysis as well as on the current composition of The Dividend Income Accelerator Portfolio. I also appreciate any suggestion of companies that would fit into The Dividend Income Accelerator's investment approach!
For further details see:
September 2023 Analysis: The Dividend Income Accelerator Portfolio After One Month Of Construction