The company I work at recently announced that they were making a self-directed option available for our 401k retirement plan. Normally you would have a list of funds to pick from, something like an S&P 500 fund, a balanced portfolio, stable fund, Target Date Funds, etc. This new feature, which they call BrokerageLink, allows the participant to direct both the employer and employee contributions to any investments that we want.
Of course as a Dividend Investor and someone who likes to take control of my finances, I immediately signed up for this!
But this decision got me thinking, what would be the best way to invest these funds? I have a current balance in the account plus I will be adding to this account every two weeks through my payroll deduction. I will also be keeping this account for at least the next 15 years, as that is when I am eligible to retire. I hope that by building this portfolio now I won’t have to make many changes after retirement.
So with this in mind, I have been trying to figure out the best portfolio for me. Is it dividend ETFs, Closed End Funds, Index Funds, individual stocks, or a combination of each?
I am still trying to finalize my decision but I decided to put together a portfolio of individual companies that are my favorites, ones that I have already done research on, like the company, believe in their future, and in most cases, already own and have experience with them.
I also wanted to make sure to have a well-balanced portfolio, with investments in each of the GICS Sectors of the economy: Communication Services, Consumer Staples, Consumer Discretionary, Healthcare, Industrials, Financials, Utilities, Technology, Real Estate, Materials, and Energy.
I reviewed my existing holdings and other companies I am fond of across each of these categories and picked my favorite company from each, as well as some runner ups in most categories. Here is the list:
Communication Services
BCE
Runner Up – CCOI
Energy (I don’t have any favorites, but here are the ones I would choose)
XOM
Runner Up – EPD
Consumer Staples
PEP
Runner Up – TGT, GIS
Consumer Discretionary
HD
Runner Up – SBUX
Materials
APD
Runner up – none
Industrials
LMT
Runner Up – MMM, TRTN
Financial Services
TD
Runner Up – BLK, PRU, AMP
Healthcare
JNJ
Runner Up – ABBV, AMGN
Real Estate
O
Runner Up – DLR, AMT, IIPR
Information Technology
AVGO
Runner Up – TXN, NTAP
Utilities
NEP
Runner Up – NEE, BEPC, DUK
This list provides 31 holdings, split across all the sectors, and provides a very diversified portfolio.
While these would be the companies I would choose today if I was starting an account, they may not be a great value right now, so if that is a concern / focus of yours, you might want to build this out over time as the companies become better values.
This portfolio on the surface is full of top-run companies, but I wanted to see what the historical metrics looked like, what the dividend yield would be, and how the dividend growth has been in the past. If this portfolio wasn’t beating the index options, why spend the time and effort to build it out when an ETF would do better.
Here are the details I calculated:
| Current Price | Dividend | Dividend Yield | 5 year Dividend Growth (CAGR) | 5 year average return | |
| Communication Services | |||||
| BCE | $52.93 | $2.73 | 5.16% | 6.17% | 3.88% |
| CCOI | $65.00 | $3.32 | 5.11% | 15.99% | 10.99% |
| Energy | |||||
| XOM | $71.04 | $3.52 | 4.95% | 3.21% | -3.53% |
| EPD | $23.96 | $1.86 | 7.76% | 2.51% | -2.48% |
| Consumer Staples | |||||
| PEP | $174.13 | $4.30 | 2.47% | 7.49% | 14.28% |
| TGT | $224.65 | $3.60 | 1.60% | 6.38% | 44.41% |
| GIS | $69.22 | $2.04 | 2.95% | 1.43% | 2.41% |
| Consumer Discretionary | |||||
| HD | $388.88 | $6.60 | 1.70% | 19.05% | 38.16% |
| SBUX | $103.35 | $1.96 | 1.90% | 16.70% | 16.13% |
| Materials | |||||
| APD | $296.37 | $6.00 | 2.02% | 12.63% | 20.66% |
| Industrials | |||||
| LMT | $366.61 | $11.20 | 3.06% | 9.38% | 8.63% |
| MMM | $180.77 | $5.92 | 3.27% | 5.92% | 0.29% |
| TRTN | $66.43 | $2.60 | 3.91% | 39.30% | 50.59% |
| Financial Services | |||||
| TD | $81.91 | $2.81 | 3.43% | 9.08% | 12.05% |
| BLK | $879.86 | $16.52 | 1.88% | 12.52% | 26.69% |
| PRU | $117.15 | $4.60 | 3.93% | 10.44% | 2.17% |
| AMP | $330.26 | $4.52 | 1.37% | 8.69% | 37.32% |
| Healthcare | |||||
| JNJ | $169.87 | $4.24 | 2.50% | 5.87% | 9.57% |
| ABBV | $134.19 | $5.64 | 4.20% | 17.71% | 23.14% |
| AMGN | $232.34 | $7.76 | 3.34% | 11.97% | 9.64% |
| Real Estate | |||||
| O | $72.29 | $2.96 | 4.09% | 3.55% | 5.22% |
| DLR | $158.87 | $4.64 | 2.92% | 5.68% | 11.19% |
| AMT | $256.23 | $5.56 | 2.17% | 19.14% | 30.00% |
| IIPR | $212.75 | $6.00 | 2.82% | 84.98% | 212.22% |
| Information Technology | |||||
| AVGO | $608.53 | $16.40 | 2.70% | 42.68% | 48.82% |
| TXN | $186.36 | $4.60 | 2.47% | 20.75% | 30.03% |
| NTAP | $95.30 | $2.00 | 2.10% | 21.43% | 32.76% |
| Utilities | |||||
| NEP | $76.97 | $2.74 | 3.56% | 14.91% | 36.20% |
| NEE | $85.33 | $1.54 | 1.80% | 12.10% | 37.03% |
| BEPC | $34.25 | $1.22 | 3.56% | 6.65% | 23.49% |
| DUK | $104.11 | $3.94 | 3.78% | 3.03% | 6.90% |
| Average | 3.17% | 14.75% | 25.77% | ||
| SCHD | $82.14 | $2.25 | 2.89% | 12.32% | 17.77% |
| VOO | $429.82 | $5.44 | 1.34% | 5.61% | 21.56% |
Takeaways / Observations:
This portfolio, if invested in equal sizes, has a current dividend yield of 3.17% and has a 5-year dividend growth rate of 14.75%. This is a great middle of the road yield and a great dividend growth rate. It beats out SCHD on both metrics, which in my opinion is the standard-bearer for dividend growth ETFs. It also beats an investment in VOO, which is an S&P 500 fund.
The portfolio has a historical price appreciation over the past 5 years of 25.77% annual, which has beaten the S&P 500 by over 4% a year, and 8% more than SCHD, which is quite impressive.
There is no guarantee going forward but this provides a great comparison exercise.
The diversity, well-rounded holdings, quality companies, and dividend yield and growth might just make this the perfect dividend growth portfolio for the long term!
Let me know what you think!
I am all over your decisions. I love following you and have a lot in my portfolio of retirement. I took your 5% advise. My big utility is PPL mainly because it’s the company I retired from. I do own DUK and AEP. I’m still learning because my grandfather told me if you’re not learning you’re sitting still. Since I rolled my retirement 9/1 I’ve increased its value from $581K to 614K. I just now started pulling dividends off because at 65 I need to. I really don’t need the money but decided to start enjoying it. I always cherish your imput.
George, thank you so much for your kind words and I am happy that you like the posts. You are doing great with your account balance and I am happy that you are able to spend some of the money you worked so hard to gain. Best of luck and thanks for reading!