JamesBrey
Investment Thesis
Investing in ETFs and companies with a high Dividend Yield provides you as an investor with various advantages: on the one hand, you can use the Dividends to build up additional income. And on the other, it means there is no need to check your bank account on a daily basis in order to see if your stocks have gone up or down.
The objective of today’s article is to help you increase the Average Dividend Yield of your investment portfolio in order to raise the additional income in the form of dividends that you receive from the companies you’ve invested in.
In order to help you, I have selected 2 High Yield Dividend picks that I currently consider to be attractive and therefore excellent choices to buy this month.
These are the 2 picks I have selected for you:
SCHD Schwab Strategic Trust – Schwab U.S. Dividend Equity ETF
SCHD is an exchange traded fund, which is managed by Charles Schwab. In my opinion, it is an extremely attractive option for investors at this moment in time. My opinion is based on several factors: the ETF doesn’t just currently offer an attractive Dividend Yield [TTM] of 3.32%, but also an attractive Dividend Growth Rate: its Dividend Growth Rate [CAGR] over the past 5 years is 13.74%.
The ETF also offers its investors a Dividend Yield [TTM], which is superior to the one offered by iShares Core Dividend Growth ETF (NYSEARCA:DGRO) (Dividend Yield [TTM] of 2.31%) or Vanguard High Dividend Yield ETF (NYSEARCA:VYM) (Dividend Yield [TTM] of 2.96%).
Even though it’s true that the iShares Select Dividend ETF (NASDAQ:DVY) and the iShares Core High Dividend ETF (NYSEARCA:HDV) provide shareholders with a higher Dividend Yield [TTM] (3.35% and 3.52% respectively) compared to SCHD (3.32%), their Dividend Growth Rate [CAGR] over the past 5 years is significantly inferior (6.98% and 4.73% respectively) to that of SCHD (13.74%). This highlights that SCHD seems to be an excellent pick when compared to its peer group.
The results of the Seeking Alpha Quant Ranking confirm that SCHD is currently an appealing pick for investors. The ETF is ranked 5th out of 85 in its Sub Class, 11th out of 422 in its Asset Class and 97th out of 1632 in the Overall Ranking of the Seeking Alpha Quant Ranking.
Source: Seeking Alpha
In addition to that, the Seeking Alpha Quant Rating, which you can find below, reinforces my theory that SCHD is currently a buy.
Source: Seeking Alpha
Furthermore, below you can find the projection of SCHD’s Yield on Cost when assuming an Average Dividend Growth Rate of 10% for the following 30 years. When assuming this Growth Rate, you can expect a Yield on Cost of 8.62% in 2033, 20.31% in 2043, and 57.96% in 2053. The graphic supports my investment thesis that this ETF is an excellent choice for all investors seeking to combine Dividend Income and Dividend Growth.
Source: The Author
In my opinion, this ETF can serve as one of the basis investments of a portfolio that aims to combine an attractive Dividend Yield with Dividend Growth.
Verizon
While the S&P 500 has shown a Total Return of -17.12% within the past 12 month period, Verizon’s Total Return in the same period has been -19.26%. Its opponents meanwhile, such as AT&T (Total Return of 34.76%) and T-Mobile (40.69%) have shown a much better performance.
Source: Seeking Alpha
At the same time, however, Verizon’s weak performance over the past 12 month period has contributed to the fact that the company is, at the time of writing, available at an attractive price point.
Verizon has a P/E GAAP [FWD] Ratio of just 8.82. When evaluating its current Valuation, it can be highlighted that it is 52.20% below the Sector Median (18.46), which can serve as a first indicator that the company is currently undervalued. The same conclusion can be drawn when comparing Verizon’s current P/E Ratio with its Average P/E [FWD] Ratio of the last 5 Years: the company’s current Valuation is -22.17% lower, which provides us with an additional indicator of the company being undervalued.
In my opinion, Verizon is an attractive choice for investors who aim to achieve a relatively high Dividend Yield, since the company provides shareholders with a Dividend Yield [FWD] of 6.31%. This Dividend Yield [FWD] is superior to its competitor AT&T (NYSE:T), which provides its shareholders with a Dividend Yield [FWD] of 5.83%. Competitor T-Mobile (NASDAQ:TMUS) does not pay any Dividend at this moment in time.
For those concerned that Verizon’s Dividend may be cut in the near future, it should be mentioned that the company currently has a Payout Ratio of only 48.63%. Due to this relatively low Payout Ratio, I consider the risk of a potential Dividend cut to be low at this moment in time.
Another reason why I consider Verizon to be an attractive pick for investors is that the company can contribute to reducing the volatility of your investment portfolio: its low 24M Beta of 0.27 and low 60M Beta of 0.34 are evidence to support this assumption.
From my point of view, it’s important that a balanced investment portfolio does not only offer an attractive Dividend Yield and Dividend Growth Rate, but also consists of companies able to reduce portfolio volatility. This helps you to have more control over your financials and to be better prepared for the next stock market crash, which for sure will happen again, one day, even though nobody knows when.
Having companies with a low Beta in your investment portfolio, such as Verizon, Johnson & Johnson (NYSE:JNJ) (24M Beta of 0.34) or Procter & Gamble (NYSE:PG) (24M Beta of 0.60) can help you to be prepared for that day and to protect your investment portfolio from losing too much value in the event of a stock market crash.
Conclusion
The two picks I have selected for you, that I consider to be attractive when it comes to risk and reward, could help you to increase the Average Dividend Yield of your investment portfolio. Both provide you with an attractive Dividend Yield: while SCHD has a Dividend Yield [TTM] of 3.32%, Verizon’s Dividend Yield [FWD] is 6.31%.
At the same time, both picks offer you Dividend Growth. While SCHD has shown a Dividend Growth Rate [CAGR] of 13.74% over the past 5 Years, Verizon has shown 2.06% over the same time period.
In addition to that, both companies could help you to reduce the risk-level of your investment portfolio. The ETF can lower risk due to its broad diversification. My theory that you can lower the risk of your investment portfolio by investing in Verizon is underlined by the company’s low 24M Beta of 0.27, implying that an investment would result in a reduced portfolio volatility.
So, if you’re looking for an investment to raise the Average Dividend Yield of your portfolio this month and are aiming to reduce its volatility at the same time, SCHD and Verizon could be excellent choices for you.
Thank you for reading and I would be glad to hear which are your favorite high Dividend Yield stocks to buy this month of January 2023.
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