Subject: Re: dividend stocks for 2024
I'm looking at some divvy stocks to take the place of treasuries. Prefer 3.5% plus, with a possible 5%+ cap appreciation p.a.and as limited downside risk as I can find.

Just an unsolicited word of caution about these parameters. I have made the mistake in the past of thinking a big, stable blue-chip stock with a healthy dividend could meet similar criteria and I have almost always been wrong. Stocks are stocks. They all carry risks. If they offer a yield as high as your hurdle rate, there's a reason why. As Jim has often mentioned, "reaching for yield" can have disastrous consequences.

The fattest yields in the S&P today generally belong to companies that participated little if at all in the index's capital appreciation this year. That's in part because seven stocks accounted for so much of it, but it's also because yields as high as your hurdle rate are often the result of a depressed stock price.

There are sectors that offer generally high yields, but they carry a substantial risk of failing to meet your growth hurdle. Oil and gas plays are subject to the wild price swings of the underlying commodities. WMB has been a hugely volatile stock over its history. Take a look at its historical chart and ask yourself if you'd feel good about that investment if it fell into one of those valleys. Real estate investment trusts pay high yields by passing along virtually all their earnings, which means growth must be funded by dilution and/or debt. W.P. Carey was considered one of the safest, most stable of these and it's down about 20% this year. Many utilities offer little or no growth, and these days might carry existential climate-related risk as well. If you're looking for growth out of tobacco (MO), good luck.*

Consumer staples and pharma might be the best bets to meet both income and growth goals, but even there high yields often reflect a cash cow status that won't produce the growth you're seeking. A lot of folks have thought Pfizer was a good candidate, but if you bought it anytime in the last six years, you're probably underwater. Coke is trading about where it was four years ago while the index has nearly doubled.

If you brought your yield hurdle down a point to 2.5, you'd add to your universe of options a bunch of growing companies that don't require inflated yields to get people to buy their stocks. Barron's recently ran a screen with that forward hurdle rate and came up with Amgen and Colgate-Palmolive, among others.

To eliminate single-company risk, you might look at one of several dividend growth ETFs available at reasonable expense ratios. Vanguard's (VIG) charges only six basis points, iShares (DGRO) only eight. None of them meet your yield hurdle, but they generally offer 2% or better. Of course, Apple and Microsoft qualify as dividend growth stocks and you'll find them among the top holdings of these ETFs (along with J&J, JP Morgan, Abbvie, Exxon, Chevron, Broadcom, UnitedHealth, etc.). Or, you can pay more (35 basis points) and let JP Morgan deliver a yield more than double your hurdle rate by selling covered calls against its portfolio holdings (JEPI). If you start researching income-oriented ETFs, you'll find lots of options.

*With the caveat that if federal cannabis reform ever happens in the U.S., the tobacco giants might buy up all the debt-ridden multi-state cannabis operators and deliver growth through m&a. But a lot of people have lost a lot of money awaiting federal cannabis reform.