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My Portfolio for BIG Dividends - ETFs | Best Investments Series - YouTube
Channel: Learn to Invest - Investors Grow
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so I've come across a lot of people who
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want to put together a strong dividend
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portfolio now sometimes some
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inexperienced investors I've seen simply
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run a screen for stocks or ETFs that pay
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a dividend and then buy a few with the
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largest dividend and then hope for the
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best or sometimes people will just buy a
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few of let's say the more popular blue
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chip investments and then they assume
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that they're safe because the blue chip
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companies and they'll pay dividends well
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if you'd like to build a great dividend
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portfolio that can provide passive
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income reliably then this video is the
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one for you hi I'm Jimmy Capello
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if this is your first time to my channel
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well what we do here is talk everything
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investing we cover everything from the
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basics of investing all the way to
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individual company analysis recent
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events in the markets building a
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portfolio and ultimately trying to get
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your money to work harder for you if
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investing is something you do or
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something that you'd like to do then hit
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the subscribe button and don't forget to
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hit the bell so you can get
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notifications when we issue new updates
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okay let's get rolling so dividend
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investments are often a popular topic
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especially after the Great Recession in
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oh wait oh nine mostly because stocks
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that pay reliable dividends often bounce
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quicker in troubled times than regular
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stocks do so when I'm trying to put
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together a dividend portfolio I try to
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focus on more than just the dividend
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itself yeah that's the end goal but I
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also want to watch the diversification
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to make sure I can help avoid risk and
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the way I do this is I like to start by
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identifying the goal of the portfolio
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now the goal will depend it'll include
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things like what is the target dividend
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yield what's the target volatility
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what's the time horizon different things
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like that in every situation would make
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the portfolio a bit unique for this
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particular portfolio I'm actually
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building it for a family member now he's
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retired and he's got some money sitting
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in a bank and he'd like to earn more
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than the
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one and a half percent he's currently
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getting he told me that he's gonna he
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wants to target five percent a year in
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dividends and he can withstand a bit of
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market volatility but wants to avoid any
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long-term loss of capital he already has
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a large portfolio of bonds so for this
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particular portfolio I'm going to mostly
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avoid bonds now I'm going to use ETFs
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for this portfolio since it makes
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diversifying much easier first I'm gonna
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start with a large cap dividend ETF
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called the pro shares S&P 500 dividend
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aristocrat CTF the ticker symbols n OBL
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their fee is 35 basis points which is
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about one third of 1% they have 53
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companies in it and these companies are
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some of the biggest companies out there
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companies like Clorox Lowe's Pepsi
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target companies like that in fact the
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average size of the companies in this
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ETF is about 70 billion now what makes
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this ETF valuable from a dividend
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perspective is that it only has
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companies that meet a few very specific
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criteria they must be in the sp500 and
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they have to have grown dividends for at
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least twenty five consecutive years they
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have to the ETF itself has to have a
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minimum of 40 companies in it and
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they're all equally weighted when the
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when the ETF rebalances every quarter no
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single sector can represent more than
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30% of the whole ETF now this plays well
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into our using ETS for diversification
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so NL BL is currently trading at about
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sixty four dollars a share and they have
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a dividend yield of about 2.2 percent so
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I'm a big fan of n o BL but the downside
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of getting such large mature blue chip
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companies is that we're only getting a
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yield of about 2.2 percent so next I
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look for something that could perhaps
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complement it with growth so for that I
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found the WisdomTree us mid cap dividend
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ETF ticker symbol do n well this one is
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a bit different because first off they
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have almost 400 companies in it and the
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ETF focuses mostly on mid cap which in
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theory could add a little bit of growth
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potential but
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unfortunately their dividend yield is
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also only about 2.1 percent now one
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thing that they make a big fuss about
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especially in their marketing material
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is that they claim to be the only ETF
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that is dividend weighted this means
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that the larger the dividend yield the
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larger the piece of the whole portfolio
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that particular company gets compared
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that to most ETF which are usually
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market cap weighted like the S&P 500 or
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equal weighted like Nov L when we just
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saw and I think this is an interesting
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way of doing it but they only rebalance
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annually and to me this is a bit
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confusing because what if something
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happens to a particular company but
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right before the rebalance and the stock
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price falls and therefore because the
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stock price is falling and the dividend
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yield would appear to be much higher so
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they would in theory get a larger piece
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of this portfolio but what if there was
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something fundamentally wrong with that
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company that's why the stock price fell
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well since the only rebalancing annually
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this stock is stuck in the portfolio for
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a whole year I think that could be
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dangerous but on the other hand there's
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over 400 companies in the ETF so even
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the largest waiting isn't that large so
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the effect of any one company could be
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fairly minimal either way I like the
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concept have any exposure to the mid cap
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space in addition to the large cap space
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both of us providing let's say a similar
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dividend and the mid cave's
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cap space generally offers more upside
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potential than large cap space now since
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I don't view these two ETFs as terribly
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different from each other and their
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yields aren't really where I need to get
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them to be to achieve the 5% goal I'm
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gonna combine these two into one
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position size I'll get further into that
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later in the video okay so for the 30 TF
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this ETF is designed to give us some
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exposure to the international market for
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this particular portfolio I like wisdom
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trees international dividend X
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financials ETF ticker symbol do o this
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ETF has a fee of 58 basis points and
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their dividend yields about 3.7 percent
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this is getting a bit closer to the 5%
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target for the whole overall port for
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well I like this ETF because it
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primarily focuses on developed economies
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mostly in Europe they also have some
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things in Japan but they have a bit over
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a hundred companies in ETF I think it's
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102 actually and they're fairly
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diversified across many sectors so I'm
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happy with this ETF for our
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international exposure so now I'm
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looking to juice up the dividends a bit
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if I'm gonna get the portfolio to be
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above the 5% a year target I still want
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to diversify but I need a higher yield
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so up next I'm adding a real estate ETF
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here I like vanguards real estate ETF
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ticker symbol vnq V&Q has a yield of
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about four point three percent and they
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have exposure to a wide assortment of
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real estate mostly in the United States
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and they focus on buying REITs if you
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don't see what REITs are you could see a
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link in the description below for an
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investing basics video that we had done
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on REITs and how we think REITs will
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fare if the Federal Reserve Rises raises
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interest rates so V&Q has almost 200
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companies and they cover tons of
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investments like malls or residential
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properties and commercial properties
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things like that another perk of vnq is
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that they only have a fee of about 12
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basis points which is great for an ETF
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that has a decent yield so we're not
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quite at the 5% we need yet but as we
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continue to round out the portfolio next
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we're going to turn to energy now here
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we're adding alarians MLP ETF ticker
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symbol a MLP now they have a more
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concentrated portfolio with just 28
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names in it and they focus on midstream
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companies midstream companies just in
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case you're not sure there are the
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companies that ship commodities like gas
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and oil they call the midstream because
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of where they fall in the commodity
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extraction process upstream is where
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they pulled the oil onto the ground
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midstream they ship it downstream their
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refine it and then they sell it so for
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us this is a great addition to the
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portfolio MLP currently has a yield of
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about 8% and this is awesome but it
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doesn't come without its downside
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since midstream companies can be tied to
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commodity prices and commodity prices
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can be quite volatile that makes a MLP
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quite volatile in fact of all the ETFs
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that we're adding to this portfolio this
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is the most volatile of all of them so
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has a great yield but it comes with at
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the expense of having increased
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volatility now to make that even tougher
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to accept mo piece fee is 85 basis
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points which is tied for the highest
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feat in the portfolio sure it's less a
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mutual fund fees but as far as ETF
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standards it's fairly relatively high so
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when I analyze the performance of a MLP
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to the ETF's already I realize that the
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reason I like this is that they have a
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relative relatively low correlation when
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it comes to how the other companies
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perform in different markets that lower
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correlation is one of the reasons I
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wanted to add this so the next addition
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to the portfolio is another one that has
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low correlation and this one is called
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the e tracks Wells Fargo Business
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Development Index BDCs is the ticker now
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technically this isn't an ETF at all
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it's an etn which is short for
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exchange-traded note now functionally
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there are some differences between an
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ETF and etn especially regarding tax
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stream and things like that but and in
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etn is probably I should probably make a
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video on that separately but for our
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purposes it will act it will provide the
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dividend that we need and I'm certainly
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happy with that this one also has a fee
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of 85 basis points same as a MLP and it
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pays a dividend of just over eight and a
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half percent which is awesome now what
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makes this one useful from our
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perspective is that it continues to
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diversify the portfolio and it helps to
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yield this particular UTI focuses on
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business development companies BDC for
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short
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what bbc's do is they invest in small
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and medium sized businesses and they
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expect to grow those businesses and try
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to profit from that think venture
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capital another key point with bbc's and
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actually MLPs and REITs to is
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and this may help explain the high
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dividend yields is that these types of
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corporate structures are unique in that
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they don't pay corporate income taxes as
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long as they pay out the majority of
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their profits usually ninety percent to
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shareholders now this is good because
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imagine a normal company typical
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publicly traded company earns a million
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dollars profit well they pay taxes we'll
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call that two hundred thousand and let's
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pretend what would be left is the eight
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hundred thousand if they were going to
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pay out even ninety percent of that
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they're only doing it on eight hundred
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thousand compare that to a b d c-- or
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MLP or a REIT and if they don't have to
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pay that first two hundred thousand
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dollars in taxes well ninety percent or
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nine hundred thousand dollars would be
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paid out to dividends this leads to
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higher dividends and ultimately that our
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dividend yields okay now we're putting
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the finishing touches on this portfolio
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for a final etf i'm adding an
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interesting one and this one is very
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portfolio specific very goals specific
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don't forget that this portfolio is for
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a retired gentleman who's looking are
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earn five percent a year from the money
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that's currently sitting in the bank so
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i'm assuming he's fairly protective of
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that money and so far we we are pretty
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close to making that happen so to avoid
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the potential of extreme volatility
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hurting us too much i've chosen to add
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the iShares twenty year Treasury bond
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etf the ticker symbols TLT so TLT helps
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with volatility because as i mentioned a
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few times with other ETFs i like to
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analyze how ETFs perform relative to
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each other how highly correlated are
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they so just be sure on the same page
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with correlation here is how correlation
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works if two companies or two ETS move
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exactly like each other one is up 5% the
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other one's up 5% and one moves to
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second now it moves to seven well if
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they always moved exactly like each
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other you have a correlation of one on
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the other hand on the other end of the
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spectrum if they move exactly opposite
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up five down five ten down ten well then
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you would get a negative correlation of
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negative one and everything will fall
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somewhere in that spectrum well here's a
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matrix that I put together that looks at
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the performance and the correlation of
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our ETFs over the past few years so we
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could see how correlated they are to
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each other as you can see here as I
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mentioned before a MLP BDCs and V&Q are
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have a lower correlation compared to
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something like n o BL and do n which are
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fairly highly correlated well if you
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look down here you can see TLT is
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negatively correlated and this negative
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correlation is huge but this means that
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if the markets up well in theory this
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will be down well if the market goes
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down if there's ever a major pullback
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this TLT holding will help smooth out
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this performance since it in theory
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should be higher now the fee for TLT is
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only 15 basis points and it has a yield
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of about two and a half percent this
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isn't bad at all considering the
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benefits I feel that it brings to this
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portfolio so to wrap up if I wanted a
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yield of let's say 6% well it's just a
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matter of reworking the waiting's for
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the portfolio for this portfolio I'm
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blending and OBL and do n into the same
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15 percent portion of the portfolio and
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that's because they're so highly
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correlated and that's about seven half
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percent each and this keeps me from
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getting to us stock heavy and then I'm
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buying about 15 percent of do o for some
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international exposure 15% of TLT tel
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help offset in a down market
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20% of BDCs and then about 17 or 18
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percent of a MLP depending on how things
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land when I actually execute the trades
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so at the end of the day assuming this
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breakout for the portfolio I'd end up
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with the yield of about 5.1 percent and
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this does exactly what I need but if I
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wanted it closer to 7 or 6 I mean I
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could simply eliminate TLT and perhaps
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spread that that money between the bbc's
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the REITs and the energy companies
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this would increase my volatility sure
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but if we were my personal portfolio I'm
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less concerned about short-term
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volatility and for me this would make a
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lot more sense since I would be
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reinvesting those dividends anyways
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so I'd welcome a market pullback so I
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could get in and buy each of these ETFs
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at a cheaper price so what do you think
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of the portfolio if you like these types
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of ETFs and if you do would you do
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something differently would you add
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something or weighted differently or
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strive for a higher yield I'm always
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curious to see what people think and I
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love hearing good ideas so hopefully you
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found this interesting and if you like
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this type of video hit the thumbs up and
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that way I know about it I can make more
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videos just like this and if you could
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hit the subscribe button and the bell
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notifications to get updates and support
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the channel I deeply appreciate it and I
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look forward to seeing you in the next
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video so until next time this is Jimmy
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signing off
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