Latest news with #incomeInvestors
Forbes
2 days ago
- Business
- Forbes
When Diversification Fails: This 11.3% Dividend Has A Huge Hidden Cost
Business meeting, brainstorming sessions discuss analysis of investment growth graph and market ... More charts in financial reports and business investment strategy planning. The media is still obsessed with the 'sell America' trade. That is, in a word, overblown. But there is something valuable here—especially for us income investors. Because even though the US has the world's most diverse and dynamic economy, bar none, we do need to make sure we're spreading at least some of our assets beyond a single country or asset class. For maximum safety (both for our portfolio value and our income streams) we also need exposure to alternative asset classes beyond US blue chips, such as global stocks, real estate investment trusts (REITs) and corporate bonds. But here's where a potential pitfall lies: Important as diversification is, we can not make the common blunder of letting it take over our investment decisions. That way lies 'locked-in' ho-hum (or worse!) returns. I think it's better to be a little overexposed to, say, the US (or one specific asset class) and book greater returns than to suffer through year after year of missed profits. Let's unpack this more using three high-yield closed-end funds (CEFs) that show the right and wrong ways to diversify: The first two are US-focused but have completely different portfolios, with one holding blue-chip stocks and the other corporate bonds. Taken together, they're a great example of diversification done right. And we are, of course, talking income here, so I've included a dividend target, as well. In all of the examples we'll get to, we're aiming for a $100,000 yearly income stream. With, say, a collection of CEFs yielding 7%—an easy-to-get yield with these funds—you can get that $100K in payouts with just $1.43 million invested. That's less than a fifth of what you'd have to pile into the typical S&P 500 stock. For the most safety, though, we want to diversify so that when one asset class is down, another will pick up the slack. But again, we do not want to become so fixated on this that we let it drag down our overall returns. Let's start off with what's happened so far this year. The Nuveen S&P 500 Dynamic Overwrite Fund (SPXX), a CEF that yields 7.3%, is about flat, including reinvested dividends as I write this. The fund holds all the stocks in the S&P 500, as the name says, and sells call options on its holdings—a low-risk way to support its dividend. Meantime, the 14.1%-yielding PIMCO Dynamic Income Fund (PDI), the biggest corporate-bond CEF out there, has returned 8.7% year to date. Stocks Bonds DIversification PDI (in purple above) is easily covering its payouts this year, so we have no worries there. But if SPXX (in orange) doesn't recover, it would have to cut payouts or sell stocks—and eat into investors' capital—to maintain them. But fortunately, SPXX has outearned its payouts, with an 8.2% annualized total return, based on the performance of its underlying portfolio, in the last decade. So there are no worries here, either, for long-term SPXX holders. This combo, in other words, is an example of effective diversification: The stock and bond picks are working in tandem to deliver a strong average return (better than stocks alone for this year)—and we're getting a 10.7% average dividend, too. Not bad! Now let's look at a fund that offers 'one-click' diversification that sounds great—it may even tempt you to simply buy, call yourself 'diversified' and call it a day. But that would be a mistake, since not all diversification is created equal. That would be another CEF called the Clough Global Opportunities Fund (GLO). It holds the bulk of its portfolio in the US but devotes a large slice to the rest of the world, as well. That differs from SPXX's domestic focus and PDI's US-dollar-centric investments in bonds and bond derivatives. GLO's geographic diversification is clever, tilting toward US multinationals with foreign consumer bases while also including high-quality international firms like Airbus and ICICI Bank (IBN). Plus, the fund yields a generous 11.3% as I write this. That gets us our $100,000 income stream on just $884,000 invested. GLO Short Term Above we see GLO (in blue) nearly matching the top-flight run of our bond fund (PDI, in purple). So GLO's global setup has been a big hit so far this year. That makes sense, as foreign markets have beaten those of the US. So, GLO is a clear winner for income and diversification, right? Well, not so fast. GLO Long Term While SPXX (in orange above) and PDI (in purple) have had strong gains over the last decade, GLO is up a paltry 3.2% annualized, much less than its current yield. To be fair, this performance isn't entirely the fault of GLO's management: The rest of the world has lagged SPXX and PDI in the last 10 years. But the Vanguard FTSE All-World Ex-US ETF (VEU), in orange below, has nearly doubled GLO. (VEU is a good benchmark for global stocks.) GLO Underperforms As you can see, GLO (in purple) was a big winner during COVID and after, but in the end couldn't hold off VEU (in orange). This is why GLO is better avoided, even though it might seem like a good idea in the name of diversification. The bottom line is that when we diversify, we of course want to set ourselves up for long-term price gains and strong yields. Pairing top-quality stock and bond funds like PDI and SPXX can deliver these. But we do not want stocks or funds that will lag others (and particularly their own benchmarks) by wider and wider margins. That's why I see GLO as a sell. Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 10% Dividends.' Disclosure: none
Yahoo
26-05-2025
- Business
- Yahoo
If You Buy the Schwab U.S. Dividend Equity ETF, You Might Want to Add This Dividend ETF Too
The Schwab U.S. Dividend Equity ETF is a well-structured dividend option. By design, the Schwab U.S. Dividend Equity ETF is going to underweight in certain sectors known for paying large dividends. Income investors looking to have a broadly diversified dividend portfolio should consider pairing the Schwab U.S. Dividend Equity ETF with another dividend-focused ETF. 10 stocks we like better than Schwab U.S. Dividend Equity ETF › The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is offering an attractive dividend yield today of around 4% or so. It is also very well-designed, mixing income, company quality, and growth into one exchange-traded fund (ETF) option. But it misses out on some key dividend-focused sectors, which is why you might want to add this one simple dividend ETF to your portfolio if you own the Schwab U.S. Dividend Equity ETF. Getting right into the meat of it, the Schwab U.S. Dividend Equity ETF only looks at companies that have increased their dividends for at least a decade. It then eliminates real estate investment trusts (REITs) from the list. For all the stocks that remain, it creates a composite score looking at cash flow to total debt, return on equity, dividend yield, and a company's five-year dividend growth rate. The 100 companies with the highest composite scores are included in the Schwab U.S. Dividend Equity ETF. The stocks are market cap-weighted, so the largest companies have the greatest impact on performance. Every year, the list is updated and the portfolio rebalanced. The cost for all of this is a very modest 0.06% expense ratio. Effectively, the Schwab U.S. Dividend Equity ETF is buying well-run companies that have attractive yields and proven track records of growth. It is likely buying many of the same companies that a dividend investor would be looking at if they invested in individual stocks. It's a solid core holding. Although the Schwab U.S. Dividend Equity ETF's approach is good, it isn't perfect. (No investment is perfect -- they all come with trade-offs.) For example, REITs are excluded from consideration, even though they are designed to pass income on to investors in a tax-advantaged manner (REITs avoid corporate-level taxes if they distribute at least 90% of taxable earnings as dividends). The screening process for the Schwab U.S. Dividend Equity ETF, meanwhile, will generally leave it underweight in areas like utilities and finance; sectors that are also known for paying dividends. And turnaround stocks, which often have high yields, will likely fail the screens, too. So buying the Schwab U.S. Dividend Equity ETF is a good idea, but you might want to consider pairing it with another dividend-focused ETF if you want a widely diversified dividend portfolio. A strong candidate is SPDR Portfolio S&P 500 High Dividend ETF (NYSEMKT: SPYD). By comparison, it is an incredibly simple ETF. It basically buys the 80 highest-yielding stocks in the S&P 500 (SNPINDEX: ^GSPC). That's it. But that's actually a near-perfect compliment for the Schwab U.S. Dividend Equity ETF, though its expense ratio is a touch higher at 0.07%. The highest-yielding stocks in the S&P 500 are generally focused on the REIT, utility, and finance sectors (with a smattering of turnaround stories thrown in). That's where the SPDR Portfolio S&P 500 High Dividend ETF has some of its largest allocations. There's a bit of an overlap in the consumer staples niche between the two ETFs, but that's probably not a bad thing, given that this sector tends to be fairly resilient during economic downturns. All in, with these two ETFs, you get exposure to the most important dividend sectors and some of the strongest-performing dividend-paying companies. The SPDR Portfolio S&P 500 High Dividend ETF's dividend yield is slightly higher, at 4.5%, too, so its inclusion in your portfolio will also help you generate a little more income. The truth is, this story could go the other way, too. If you buy either one of these ETFs, you are missing out on an important dividend approach. The Schwab U.S. Dividend Equity ETF highlights dividend growth and high-quality companies. The SPDR Portfolio S&P 500 High Dividend ETF's approach is focused simply on high-yield stocks, though that's within the confines of the S&P 500's selection criteria. The differences between the two ETFs is a little subtle, but in the end, they work well together to create a balanced income portfolio. Before you buy stock in Schwab U.S. Dividend Equity ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Schwab U.S. Dividend Equity ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $639,271!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $804,688!* Now, it's worth noting Stock Advisor's total average return is 957% — a market-crushing outperformance compared to 167% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. If You Buy the Schwab U.S. Dividend Equity ETF, You Might Want to Add This Dividend ETF Too was originally published by The Motley Fool
Globe and Mail
16-05-2025
- Business
- Globe and Mail
Here's How Many Shares of Pfizer You Should Own to Make $10,000 in Annual Dividend Income
Looking for income? You might want to check out Pfizer (NYSE: PFE). This big drugmaker has been a favorite for income investors for years. However, its dividend is arguably more attractive than ever. At this writing, the forward dividend yield stands at a mouthwatering 7.52%. The more you invest in Pfizer, the more income you can make. How many shares of Pfizer should you own to make $10,000 in annual dividend income? Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More » Doing the math To figure out how many shares you'd need, let's start with the company's quarterly dividend payment of $0.43 per share. Multiplying that amount by 4 gives us an annualized dividend of $1.72 per share. With that number in hand, we only need to divide the desired $10,000 by $1.72 per share to calculate the number of shares required. The result comes to 5,813.95 shares. Most of us would round that number up to 5,814. If you really want to get exactly $10,000 in annual dividend income, though, you could use fractional shares. At Pfizer's share price at the time of this writing ($22.87), you'd need to invest roughly $132,966 to generate $10,000 in income. Putting such a steep amount in only one stock would only be advisable if you have a large portfolio with enough additional money to buy enough other stocks to be well diversified. A shifting target Keep in mind that the number of Pfizer shares you need to own to make $10,000 in dividend income could be a shifting target. Why? The quarterly dividend payment could change. For example, Pfizer announced a dividend increase of $0.01 per share in December 2024. This marked the company's 16th consecutive dividend hike. It's possible that Pfizer will continue to increase its dividend. The drugmaker's management regularly confirms its commitment to maintaining and growing the dividend. What about the possibility of a dividend cut? Pfizer's dividend payout ratio of 122.5% might look concerning. No company can pay more in dividends than it makes in earnings indefinitely. The good news is that Pfizer is generating sufficient free cash flow to fund the dividend at current levels. I's also making cost reductions that should bolster free cash flow. Granted, the company faces the loss of exclusivity for several key products over the next few years. These patent expirations could weigh on free cash flow and potentially put pressure on Pfizer's ability to pay its dividend. On the other hand, the drugmaker has multiple rising stars in its lineup, along with a promising pipeline. All things considered, I think that the chances that Pfizer will increase its dividend payout are better than the odds that it cuts the dividend. If I'm right, this means that the number of Pfizer shares needed to make $10,000 in annual income will be somewhat lower than 5,814 in the future. Is Pfizer a good pick for income investors? For any stock to be a good choice for income investors, it should offer an attractive dividend that's reliable. Ideally, the stock should also have a reasonable valuation relative to its growth prospects. Pfizer clearly has an attractive dividend with a juicy yield. The company has a good track record of dividend increases with a management that prioritizes dividend growth. It should be able to fund the dividend at least at current levels for a while. The drugmaker's forward price-to-earnings ratio was recently 7.9, well below the average forward earnings multiple of 16.1 for the S&P 500 healthcare sector. Pfizer's price-to-earnings-to-growth (PEG) ratio, which is based on analysts' five-year earnings growth projections, is a super-low 0.6. I believe Pfizer checks off all the boxes to be a good pick for income investors. And if you have nearly $133,000 to spare, this pharma stock could make you $10,000 in annual dividend income. Should you invest $1,000 in Pfizer right now? Before you buy stock in Pfizer, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Pfizer wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $620,719!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $829,511!* Now, it's worth noting Stock Advisor 's total average return is959% — a market-crushing outperformance compared to170%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of May 12, 2025
Yahoo
11-05-2025
- Business
- Yahoo
Here's How Many Shares of Verizon Communications You Should Own to Receive $5,000 in Annual Dividend Income
The calculation to determine how many shares of Verizon are needed to make $5,000 in annual income is straightforward. However, the number is a moving target because of the strong possibility that Verizon will increase its dividend. Verizon offers investors more than a dividend, too, as evidenced by its market-beating performance in 2025. 10 stocks we like better than Verizon Communications › Verizon Communications (NYSE: VZ) is known for many things. High-speed internet. An extensive network. Reliable coverage. But if you're an investor, probably the main thing you think of when Verizon is mentioned is the company's dividend. Because of its ultra-high dividend yield, Verizon is popular with income investors. You might be surprised how much income a not-too-huge stake in this telecommunications stock can generate. Here's how many shares of Verizon Communications you should own to receive $5,000 in annual dividend income. Verizon currently pays a quarterly dividend of $0.6775 per outstanding share. That translates to $2.71 in annual dividend payments for each Verizon share you own. Now, let's determine how many shares you'd need to own to receive $5,000 in yearly dividend income. The math is straightforward. All we need to do is divide $5,000 by $2.71 per share. This gives us a result of 1,845.018 shares. If we round this number down and you bought 1,845 shares of Verizon, your annual income would be a nickel short of the target $5,000. If you round up and buy 1,846 shares, your annual income would be $5,002.66. If you want to make exactly $5,000, you'd need to use fractional shares (although I doubt many investors care about being that precise). Regardless of the exact number of shares you purchase, you'll need a significant upfront investment. To make in the ballpark of $5,000 in annual dividend income, you would have to buy around $81,000 of the stock. However, it's important to note that the number of Verizon shares you need to own to receive $5,000 in annual dividend income could be a moving target. The primary variable is the amount of Verizon's quarterly dividend payment. Verizon has increased its dividend for 18 consecutive years. The telecommunications giant announced its most recent dividend hike in September 2024. If it raises the dividend payout again later this year, you won't have to own as many shares to make $5,000 in annual income. How likely is it that Verizon will keep its streak of dividend increases going? I think the chances are very good. Verizon's dividend payout ratio is currently 64.23%. This level gives the company ample flexibility to boost its dividend in a few months if the board of directors chooses to do so. Verizon's free cash flow also indicates a strong position for increasing the dividend. The company generated free cash flow of $3.6 billion in the first quarter of 2025, a big jump from $2.7 billion in the prior-year period. It expects to deliver free cash flow of between $17.5 billion and $18.5 billion for full-year 2025. To put that range into perspective, Verizon paid $11.2 billion to fund its dividend program last year. CEO Hans Vestberg listed Verizon's capital allocation priorities in the company's first-quarter earnings conference call in April 2025. First on the list was to continue investing in the business. What was second? Vestberg said Verizon plans to "support and grow our dividends." The dividend isn't the only thing that makes Verizon attractive to investors, though. The stock has been a solid winner this year, rising close to 10% while the major market indexes have declined. One plus for Verizon is that its business should hold up relatively well under the Trump administration's high tariffs. Vestberg noted in the Q1 call "a very small portion" of the company's projected capital expenditures are exposed to tariffs. He added: "We are a U.S.-based company, investing in [the] U.S. Fiber is U.S.-centric. Everything we do with labor, product is fiber-based." Vestberg acknowledged that tariffs could cause handset prices to increase. However, he said that Verizon isn't planning to absorb the higher costs. Meanwhile, Verizon's business is booming. It generated industry-leading total wireless service revenue in Q1. The company expanded its broadband market share. Verizon's growth could accelerate in the not-too-distant future with the pending acquisition of Frontier Communications. Buying 1,845 or 1,846 shares of Verizon should make you roughly $5,000 over the next year. However, you could make even more money if the stock's price increases -- which I think is likely. Before you buy stock in Verizon Communications, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Verizon Communications wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $617,181!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $719,371!* Now, it's worth noting Stock Advisor's total average return is 909% — a market-crushing outperformance compared to 163% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 5, 2025 Keith Speights has positions in Verizon Communications. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy. Here's How Many Shares of Verizon Communications You Should Own to Receive $5,000 in Annual Dividend Income was originally published by The Motley Fool
Yahoo
10-05-2025
- Business
- Yahoo
This 7.8%-Yielding Stock Is Poised for Accelerating Growth
Energy Transfer delivered solid Q1 results. The midstream leader should benefit from strong international demand and data center expansions. Energy Transfer arguably offers pretty much everything an income investor would want in a stock. 10 stocks we like better than Energy Transfer › Like most stocks, Energy Transfer LP (NYSE: ET) has been quite volatile so far in 2025. However, nervous investors received great news from the midstream energy company on Tuesday. Energy Transfer's unit price popped following its first-quarter update. But the Q1 numbers weren't the main story. This 7.8%-yielding stock is poised for accelerating growth. Energy Transfer announced net income for the first quarter of $1.32 billion, or $0.36 per diluted unit. This result reflected year-over-year growth of roughly 6.5%. It also beat the consensus analysts' earnings estimate of $0.33 per unit. The limited partnership (LP) also reported volume growth across the board. Interstate natural gas transportation volumes rose 3% year over year to a record high. Crude oil volumes soared 10%. Natural gas liquids (NGLs) volumes increased 4%. NGL exports jumped 5%. Terminal volumes for NGLs and refined products were up 4%. Midstream gathered volumes were more than 2% higher than in the prior-year period. Granted, there were a few not-as-rosy parts of Energy Transfer's update. The midstream energy leader's revenue slipped 2.8% year over year to $21 billion. Distributable cash flow also fell from $2.36 billion in Q1 of 2024 to $2.31 billion in the recent quarter. CEO Marshall "Mackie" McCrea also acknowledged in the Q1 earnings call that Energy Transfer has seen "a slowdown a little bit over the last few weeks." He added that management foresees "some potential challenges over the next quarter or two." Any industry softness should be only temporary, though. McCrea said, "But, a year, two years through 10 years, we're extremely bullish on our industry and on the need for all the products that we transport." He explained, "This is what happens in this industry. It will slow down, and then it will come back as a barn burner. We certainly anticipate that happening with oil but even ten-fold on gas." International demand for butane, ethane, and propane is a bright spot for Energy Transfer. China is a major customer, but not the only one. McCrea stated, "[W]e really don't expect to see any major challenges, if any challenges at all, selling out our terminal every month, the rest of this year." Data centers have also become such an important growth market that McCrea used the term "gold rush." In February 2025, Energy Transfer announced a long-term agreement to provide natural gas for CloudBurst's artificial intelligence-focused data center development in Central Texas. McCrea revealed in the Q1 earnings call that the LP is exploring additional opportunities with around 150 data centers in Texas alone, plus more in other states. He hinted, "[W]e expect to make some significant announcements in the next four to eight weeks." There's also increasing demand for natural gas in Texas because of the state's growing population. McCrea stated enthusiastically, "[W]e're excited about the revenue that we're about to bring in the door." His company has made the investments required to achieve this growth, too. Energy Transfer plans to spend around $5 billion on organic growth capital projects this year. Most of these projects should come online in 2025 or 2026. I think Energy Transfer offers pretty much everything an income investor could want. As previously mentioned, its forward distribution yield is a juicy 7.8%. The LP increased the distribution by more than 3% last month. The LP's business model is resilient. Energy Transfer's cash flows are primarily fee-based. It has limited exposure to commodity prices. CFO Tom Long said in the Q1 call that the company's balance sheet is the strongest in its history. Energy Transfer's volatility in 2025 has been overdone, in my view. With its attractive distribution and likelihood of accelerating growth, this stock looks like an ideal pick to buy on the dip. Before you buy stock in Energy Transfer, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Energy Transfer wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $623,103!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $717,471!* Now, it's worth noting Stock Advisor's total average return is 909% — a market-crushing outperformance compared to 162% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 5, 2025 Keith Speights has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This 7.8%-Yielding Stock Is Poised for Accelerating Growth was originally published by The Motley Fool Sign in to access your portfolio
