More Dividend Investing Ideas

Last week I wrote about building a strong, diversified portfolio of reliable dividend stocks.  As I discussed in that post, we seem to be headed into a very low interest rate environment, with the Fed set to cut interest rates next week (with a 79% chance of a 25 basis point cut and a 21% chance of a 50 basis point cut) and many other central banks around the world already heading toward negative interest rates, if they aren't already there.  Below is a chart that has been circulating around social media for the past few weeks showing this disturbing trend. 

As I discussed last week, this makes it difficult if not impossible as an investor to put your money to work safely in an interest bearing account.  Indeed, if you are investing at a negative rate, you are having to pay the bank to hold the money versus the other way around.  While the US has not reached negative rates yet, if you consider the effects of inflation and the upcoming rate cuts from the Fed, we probably already have negative "real" interest rates. 

As such, investors need to look into other ways to earn a yield while managing the amount of risk taken on in the process.  Investing in solid dividend yielding stocks are one such way and with the lower US tax rate on "qualified" dividends, there's also a tax benefit to these vs interest bearing accounts. 

This post will look into some other ways to achieve high dividend yields.  Buying an Exchange Traded Fund or ETF is a very efficient way to invest in dividend yielding stocks and there are many to choose from.  Indeed, buying an ETF is a lot easier than having to buy individual stocks and is an easy way to diversify your risk.  Please note that you'll need to do your own research and this is not a recommendation to buy any particular stock or ETF. 

Below are the results of a quick screen I performed of the best performing large cap, US dividend ETF's:

As you can see, the best of the bunch is the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD), with a yield of 4.96% and a pretty low P/E.  Coming in at Number 10 is the Invesco Russell 1000 Yield Factor ETF (OYLD) at 3.55%.  Note that with the recent market rally, some of the yields have trended a bit lower that what is reported in the screener.  It's interesting to note the P/E ratio of these ETF's compared to that of the S&P 500 which is about 21.3 based on last full quarter of data (March 2019).  The higher P/E ETF's would appear to be a bit riskier than ones that are at or below the S&P 500 average and this should be a consideration when selecting a fund.

I hope you find this post useful as you chart your investing course and Build a Financial Fortress this year.
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