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Happy Hogmanay to all on here for 2024.!

I am a bit late to ask for input on dividend stocks for the next , say, 5 years +.
as I "see" interest rates come down, and have some pennies lying idle-ish in my IRA, 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. I really havent looked closely at divvy stocks for years, so my picks may be absolutely crap.

here is what I added last Q:

XOM
DOW
BAC

here is what I'm looking at :
MO
WMB

one I am "banking on" for future,bought last year. PG says will reinstate div within 4 years, meanwhile its done very well.

INTC

anyone else looking / thinking like this ?

A couple of other ideas from the broken record department

Buy BRK and each quarter sell X% of however many shares you still have.
You could use X=1% per quarter. I estimate that for quarterly values up to 1.4% the real value of your holding, and the cash raised, will both still rise over time.
The real lesson here is not that Berkshire is the best pick of all, but that seeking a dividend yield per se rarely makes good sense.
Go for the best investment, first, aiming for the best long run real total return with the lowest risk of permanent loss of capital. If your best idea doesn't give the cash yield you want, sell some occasionally. This gives the cash you want, and a better portfolio.

For a more conventional notion:
Hershey at $186.50 has a dividend yield of 2.59%.
The dividend has risen 9.5%/year in the last 10 years. Value Line forecasts that it will actually rise 11%/year in the next 3-5 years, though it's unwise to simply believe them.

Jim

Hi Jim, I am already doing that to some extent, mostly thanks to your previous postings on here.
I do that from my brokerage account for the cap gains tax level.

I was looking to add divvy stocks with capital upside for my brokerage, where I am very overweight BRKB as well, in the interests of some di"worsification" :-). I want to be prudent and tax efficient , as well as try for a little upside here.
is my thinking wrongheaded do you think ?
cheers
Hbird

is my thinking wrongheaded do you think ?

"Wrongheaded" is pretty harsh : )

I just find that the best portfolios, even those needed for current income, are usually constructed with security selection done ignoring dividend yield as a criterion. Even after tax considerations, usually. My advice: Build the best portfolio you can, have a look at what yield it's getting, and if necessary sell a bit more to top it up to the income you want/need. In any case, it's unlikely in the extreme that any dividend slate will have the precise amount of income you want/need anyway, so you still have to fiddle a bit.

Would you rather have something with an earnings yield of 4% and a dividend yield of 3%, or something with an earnings yield of 8% and a dividend yield of zero? The answer is obvious to me (the latter), but some people will never see it that way. They think of a dividend as a costless something "extra" on top of the stock price return, so they unwisely want as much as they can get.

A portfolio of all stocks in the Value Line set that pay over 6% dividend yield underperformed the S&P 500 in the last 20 years. It seems they are bid up to overvalued levels by those that unwisely seek current yield. On average, this effect hits all stocks with meaningful yields to some extent. A lot of managers opt for a juicy dividend when they have no other good way to attract investors.

Here is a very different suggestion: a broad slate of large cash-rich dividend payers with high ROE. (version 2 in the post).
http://www.datahelper.com/mi/search.phtml?nofool=y...
That slate, 40 stocks held two months equally weighted and repeat, has beat the S&P by just over 6% after trading costs in the 40 months after that post.
And every stock has a dividend. The aggregate yield probably isn't too bad (it was 2.2% at the time of the post), and the risk has to be pretty constrained. Much lower concentration risk than the S&P.

Jim

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.

Another thought.
Have you considered OXY? $59.71.

The dividend yield isn't very high right now at 1.21%, but forecasts are that the payout will rise a lot in the next couple/few years. Value Line expects $2.50 within 3-5 years, which would be a yield over 4% on today's price.
And of course Mr Buffett clearly thinks they're not going anywhere and are reasonably priced at current prices. His picks aren't always big winners, but I'm reasonably happy to outsource my due diligence on viability to him.

I won't touch them, myself. Every time I go near oil and gas I lose my shirt. Presumably someone else is making the money that I'm losing, might as well be you.

Jim

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