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Passive Income Dividends [Monthly Dividends to Pay the Bills] - YouTube
Channel: Let's Talk Money! with Joseph Hogue, CFA
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How would it be if your investments paid your
bills each and every month?
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What if you could create a consistent paycheck
from dividend stocks alone?
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In this video, I鈥檓 revealing a dividend
portfolio of seven stocks that will generate
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cash EVERY SINGLE MONTH!
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Even better, besides the dividends, the portfolio
will continue to grow so your dividend payments
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increase every year.
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We鈥檙e talking passive income dividends today
on Let鈥檚 Talk Money!
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Beat debt.
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Make money.
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Make your money work for you.
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Creating the financial future you deserve.
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Let's Talk Money!
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Joseph Hogue with the Let鈥檚 Talk Money channel
here on YouTube.
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I want to send a special shout out to everyone
in the community, thank you for taking a little
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of your time to be here today.
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If you鈥檙e not part of the community yet,
just click that little red subscribe button.
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It鈥檚 free and you鈥檒l never miss an episode.
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Dividend investing has been hugely popular
here on the channel and why not?
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Who doesn鈥檛 love getting those cash payments
while you invest?
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In fact, another video on passive income dividends
was the first to really blow up here on Let鈥檚
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Talk Money with more than 265,000 people learning
how to make their money work for them.
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But that video is more than a year old so
I wanted to update it, improve it by putting
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together a portfolio of dividend stocks you
can use for reliable and consistent cash flow
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EVERY SINGLE MONTH.
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The problem with trying to pay your bills
with dividends is that most stocks only pay
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four times a year, once every three months.
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There are some monthly dividend stocks but
they leave out the best opportunities in cash
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yield and return.
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So to solve this problem, I put together a
list of dividend stocks so that you鈥檒l collect
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a solid dividend every month.
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These are some great blue chip dividend stocks,
the most stable dividends you can find with
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high yields and a return that will grow your
portfolio.
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I鈥檒l take you through each stock, why I
like it and how it fits with a monthly dividend
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portfolio.
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Make sure you watch for all seven though because
it鈥檚 really that entire portfolio that鈥檚
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going to create those consistent cash payments.
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First I do want to reveal how I picked these
stocks.
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Everyone in the Let鈥檚 Talk Money community
knows I鈥檓 not about just listing out a bunch
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of stocks to buy.
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I want to give you the tools to find your
own investments, a process you can use to
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be a better investor.
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So I first screened for stocks with a cash
yield of 3% or higher and I included a share
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buyback program in the cash yield because
that鈥檚 also a return of cash to shareholders.
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I then filtered this list for stocks with
a history of growing their dividend.
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That鈥檚 hugely important and in fact, research
has shown that companies increasing their
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dividend outperform the rest of the market
by more than 7% a year.
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Then I looked for companies with a payout
ratio that signaled a commitment to returning
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cash to shareholders but not one so high that
it limits future growth.
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This is also very important and something
we鈥檝e talked about on the channel.
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I love a good dividend but a company paying
out too much of its profits, so a high payout
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ratio, is leaving itself at risk to lose market
share and destroy the stock鈥檚 value.
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So I want to find companies in that sweet
spot where the payout ratio makes for a good
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dividend yield but not so high that it destroys
future value of the stock.
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Finally, I looked deep into the company鈥檚
financial statements to do that fundamental
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analysis.
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I鈥檓 looking here for higher profitability
compared to peers in the same industry, strong
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cash flows and a competitive advantage that
makes it a best of breed.
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What I found was seven bellwether stocks,
companies that are icons of their industries,
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with stable dividends and a history of strong
returns.
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Ford and the entire automotive sector has
had a tough go lately but there鈥檚 reason
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to believe the worst is over and the shares
pay a solid 6.3% dividend yield.
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The problem with the automakers is there was
such a huge rush on car sales after the recession.
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With the cash for clunkers program and interest
rates near zero, new car sales surged all
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the way to 2015 and have just sputtered since
then.
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Ford management has done a decent job of cutting
costs but knows it has to do more.
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The company has gone from making cars on 27
platforms in 2007 to just 9 today which gives
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it a lot more flexibility and efficiency.
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Ford has a solid year planned for product
launches including the Explorer and a new
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super duty truck later.
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We鈥檝e already seen some good numbers from
the launch of the Ranger and sales should
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be good this year.
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On that industry weakness, Ford hasn鈥檛 increased
its dividend since 2015 but it鈥檚 got a solid
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history of making the cash payment.
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Dividends are paid in January, April, July
and October.
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The payout ratio of 78% is a little high but
still leaves some room for growth.
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Earnings are expected 3.8% higher over the
next four quarters to $1.35 per share which
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puts the shares at an extremely attractive
7.4-times price-to-earnings.
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There鈥檚 a good chance Ford could surprise
to the upside.
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Earnings before interest and taxes, so that
EBIT measure, jumped in the first quarter
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to $2.4 billion from just $1.5 billion last
quarter.
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A lot of this was on a big move in profitability
from just 3.5% EBIT margin to 6.1% which is
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a huge move in one quarter.
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Of all the dividend stocks I cover, Realty
Income, ticker O, is probably the most popular
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on its monthly payment and 3.9% yield.
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The real estate company is the largest triple-net
REIT in the U.S. with nearly 6,000 properties
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in 49 states and Puerto Rico.
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Most of the portfolio is in retail space which
I don鈥檛 love considering the evolution into
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ecommerce but occupancy for Realty Income
has never been below 96% in 23 years of business
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so these are high-quality properties.
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The company has made 86 consecutive quarterly
increases, growing the dividend by 4.6% a
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year on average.
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Funds from operations have grown at a 5% annual
pace with only one quarter of falling FFO,
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which is pretty amazing when you consider
what the rest of the REITs did during the
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three years through 2010.
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There are a few keys to the company鈥檚 outperformance
and some things I鈥檓 watching for that to
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continue.
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The company runs on a sale-leaseback strategy,
so it will buy commercial properties owned
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by companies and then rent the property back
to them.
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So we鈥檙e talking huge retail companies like
Walgreens and Walmart.
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The company also runs a triple-net model where
the tenant pays all property expenses so Realty
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Income basically just collects rent checks
and passes profits on to investors.
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The company has almost zero exposure outside
the U.S. but it鈥檚 making a move on the European
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commercial property market.
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Whereas real estate firms own much of the
market here in the U.S., in Europe most of
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the market is still privately owned so there鈥檚
a big opportunity here for a management firm
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to consolidate.
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Realty Income signed a $557 million deal recently
to buy 12 properties from Sainsbury in the
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U.K. and lease the property back on 15-year
terms.
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Rent growth jumped 1.5% in the first quarter
versus an average of about 1% a year so I
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think there鈥檚 a good chance cash flow surprises
on the upside this year.
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The company put this graph out in its first
quarter presentation to show how the shares
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have done on a total return and volatility
basis and I think it鈥檚 a great chart with
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a lot to say.
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First is that you see Realty Income has produced
a very strong annual return, over 15% a year
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for those 23 years, but that it鈥檚 also done
it with less violent ups and downs in the
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price.
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The graph is also an interesting look at how
sectors and other stocks have performed over
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the period.
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So we see that some other solid dividend names
like Johnson & Johnson, Verizon and Proctor
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& Gamble have produced decent annual returns
with that low volatility.
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These are your traditional safety stocks in
consumer staples and telecom.
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On the other side here, you see some of the
popular tech names have been riskier, so more
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volatility, but have produced higher returns.
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It would be hard to make a dividend portfolio
that didn鈥檛 include Coca-Cola, ticker KO,
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with its 3.2% dividend yield and 55 years
of dividend increases.
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Coca-Cola pays it鈥檚 dividend in March, June,
September and December and has made that payment
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every quarter since 1920.
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Besides the dividend payment, Coke also has
a share buyback program that returns a net
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$1.5 billion to investors for another 0.7%
cash yield.
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Coca-Cola is #1 in 32 of the top 40 markets
in over 75 beverage categories.
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It鈥檚 diversified across juice, dairy, water,
tea and coffee besides soft drinks.
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The company sells over 1.9 billion drinks
a day in 200-plus countries.
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So scale and distribution is really the story
and the advantage here.
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The company has the brand and reach to create
efficiencies that other company鈥檚 just can鈥檛
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touch.
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Coca-Cola has been transitioning to an asset-light
model over the last three years, selling off
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its bottling factories through franchise agreements.
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This has really driven flexibility with new
products accounting for 17% of volume last
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year versus just 9% in 2015, so that product
pipeline is extremely healthy.
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As a result of the cost cutting, operating
profitability jumped to 30.8% last year from
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26.9% in 2017 and management鈥檚 expecting
a further $600 million in savings this year.
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Earnings are only expected 1.4% higher over
the next year to $2.13 a share but management
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has a history of beating expectations so odds
are this number will be higher.
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This next dividend stock in our portfolio
is actually a fund, the Vanguard Dividend
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Appreciation ETF, ticker VIG, with a 1.9%
yield.
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Now that yield isn鈥檛 much but I love adding
this one for its total return.
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You can see it follows the market pretty closely
but it鈥檚 outperformed by 5% over the last
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year and has produced a 14.4% annual return
over the last decade.
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That price return is going to help grow your
portfolio even as you鈥檙e taking the dividends
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out.
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The fund pays in March, June, September and
December and is a great addition to the portfolio
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for diversification.
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If you just had 7 stocks, that鈥檚 14% of
your money in each.
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Trouble at one company could destroy your
portfolio.
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The Vanguard fund holds shares of 183 companies,
diversified across all nine sectors of the
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economy.
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That goes a long way to spread your risk around
and you鈥檝e still got that growth upside.
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We鈥檝e got three more to put in our dividend
stock portfolio but I want to get your opinion
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on this.
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What鈥檚 your favorite dividend stock and
why do you think it should be part of the
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portfolio?
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Scroll down and let us know in the comments
below.
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Verizon, ticker VZ, is the country鈥檚 largest
wireless carrier with 40% of the U.S. market
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and pays a 4.4% dividend yield.
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The telecom giant pays dividends in January,
April, July and October with 12 consecutive
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years of increasing payments.
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The payout ratio is 61% of earnings but that鈥檚
typical for the industry.
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Earnings are expected just 0.6% higher over
the next year to $4.74 per share, which sets
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it around 12-times on a price-to-earnings
ratio.
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There are a lot of reasons to like this company
though and I don鈥檛 think the market has
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priced in some upside.
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Verizon is leading in 5G tech developments
with the world鈥檚 first 5G ultra-wide network
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and two smartphones capable on the network.
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5G is going to revolutionize mobile over the
next few years and Verizon will be there to
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take advantage of it.
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The company also has a lot of value in it鈥檚
new media group with the acquisition of AOL
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and Yahoo.
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Now it鈥檚 inked a partnership with Google
to distribute YouTube TV which could be huge.
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Verizon has bucked the race to the bottom
price war among wireless carriers lately which
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has hurt subscriber growth but I like management鈥檚
decision on this one.
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They might lose a few subscribers on the lower
end but I think they鈥檒l make up for it in
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profitability and the share price will be
rewarded by investors.
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Johnson & Johnson only pays a 2.7% dividend
yield but returned more than $5.8 billion
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to investors through the share buyback last
year for a total 4.3% cash yield.
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That conservatism, committing to a little
lower dividend but offering a buyback, has
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helped the company increase the dividend for
57 consecutive years.
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JNJ pays its dividend in February, May, August
and November with about 62% of profits going
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to cover the cash payment.
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The company is a runaway leader in healthcare,
booking $82 billion in annual sales across
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pharmaceuticals, medical devices and consumer
products.
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Income from the pharmaceuticals segment has
taken a hit lately but strength in consumer
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sales has filled the gap.
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JNJ has faced some uncertainty lately on the
string of lawsuits around opiods and they鈥檒l
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likely have to pay out a settlement.
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This is mostly factored into the stock though
at this point and large settlements typically
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are paid out over years or decades so I don鈥檛
think the financial burden is quite as bad
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as the market sees right now.
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Earnings are expected 6.4% higher over the
next year, which is extremely strong given
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overall economic growth.
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That puts the shares right around 15-times
earnings so not particularly expensive and
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some upside potential for higher return.
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Apple is our closet dividend stock with only
a 1.76% yield but a GINORMOUS cash yield through
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the buyback program.
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To give you an idea, Apple paid out $13.7
billion in dividends last year, a healthy
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increase of 7.4% over it鈥檚 2017 dividend
but still a fairly low yield.
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The company paid out another $72 billion,
almost 9% of the market cap, to buyback its
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own shares and it still has over $66 billion
in cash sitting on the balance sheet.
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Generating $64 billion in free cash each year,
this is a company that has plenty to keep
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returning to shareholders.
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Apple makes its dividend payment in February,
May, August and November and has increased
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the dividend every year since it started paying
again in 2012.
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The company is slowly moving to a services-centered
business model where hardware sales are less
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important and that recurring services revenue
becomes a bigger share.
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The entire ecosystem of Apple products from
the phone, the tablet and mac to all the services
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makes it a consumer giant with an advantage
over any other competitor.
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It basically means Apple only has to get you
to buy one product or sign up anywhere in
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its services and it鈥檚 a good bet you鈥檒l
be picking up its other products and services.
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That鈥檚 exactly the kind of thing you want
to see in a company and it makes for extremely
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stable cash flows.
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Earnings are expected higher by only 1.1%
over the next year but no company beats earnings
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like Apple.
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A beat of about 5% would put earnings at $12.62
a share and a price to earnings of 14-times.
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So here you see the entire portfolio, all
seven dividend stocks, their dividend yield
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and the months you鈥檒l receive the payment.
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Notice we鈥檝e got at least three payments
coming every month and the portfolio yield
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of 3.3% is about twice the average dividend
yield on the stock market.
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I know a lot of you are asking, why not just
invest in the highest yielding stocks.
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There are stocks that pay 12% and 15% yields.
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Why not just invest in those?
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I do like some of those high-yield stocks
and I鈥檝e got a video on the channel ranking
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my top five for double-digit dividend yields.
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I鈥檒l leave a link in the video description
to that one.
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What I wanted to do here though is create
a portfolio for maximum stability and total
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returns.
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These might not be the highest yields but
each stock offers a double-digit upside beyond
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the dividend yield.
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These are stocks you can count on to provide
the cash every month when you need it AS WELL
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AS growing your portfolio.
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To give you an example of how well this portfolio
works at producing monthly income, I鈥檝e
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made this table showing the monthly payment
you鈥檇 receive on a $100,000 portfolio of
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the seven stocks.
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You鈥檙e collecting from $300 to almost $500
every month but what鈥檚 even better is you鈥檒l
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see your portfolio value grow and your dividends
grow over time.
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So that almost $4,500 in dividends you collect
will keep growing every year.
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I鈥檝e got three more stocks you can add to
this portfolio, three of my favorite stocks
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that pay a monthly dividend.
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Click on the video to the right for those
great monthly dividend stocks and don鈥檛
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forget to tap that subscribe button to join
the Let鈥檚 Talk Money community.
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