Where to Find High Dividends in the Second Half of 2024

Investing in High Dividend Stocks: A Strategy for Stability

In a market context characterized by hypertension and possible turbulence, many investors are seeking diversified solutions that can offer stable returns.
In addition to bonds, an interesting solution for stock market enthusiasts is high dividend stocks.
These stocks offer investors a form of “yield,” meaning periodic distributions of earnings in the form of dividends, which can help stabilize the portfolio in times of uncertainty.

High Dividend Stocks and Value Stocks: What Do They Have in Common?

First and foremost, it is important to remember that high dividend stocks often belong to the category of value stocks.
But what exactly are value stocks? Value stocks are shares of companies that tend to have low price-to-earnings (P/E) ratios, high dividend yields, and strong financial balance sheets.

In recent years, stock market price growth has mainly focused on growth stocks, that is, companies with high earnings and revenue growth rates.
However, in anticipation of a possible market rebalancing, including value stocks in the portfolio can help provide stability and reduce overall volatility.
Value stocks tend to be less volatile than growth stocks and offer stable returns through dividends.

Participating in the High Dividend Stock Market

To select companies with high dividends, a good starting point is the Schwab U.S.
Dividend Equity ETF (SCHD), which currently has a Dividend Yield of 3.68%.
This ETF is designed to offer investors exposure to a portfolio of companies with solid fundamentals and a track record of high dividend payments.

In addition to SCHD, there are two other popular dividend ETF options in the market:

– The Vanguard Dividend Appreciation ETF (VIG) focuses on companies that have increased their dividends for at least ten consecutive years.

– The Vanguard High Dividend Yield ETF (VYM) provides exposure to a wide range of companies with high dividend yields.

Stock Picking for High Dividend Companies

When evaluating a stock based on its ability to pay dividends, it is important to consider several parameters.
According to most experts, a careful analysis should first consider the profit margin and the 5-year dividend growth rate.
Filtering among companies with a market capitalization of at least $10 billion, a smart choice could be to look for those with a positive 5-year earnings per share growth rate and a 5-year dividend growth rate of at least over 5%.

Looking at the top 10 holdings for SCHD, which make up 40.84% of the portfolio, some promising value companies highly admired by investors emerge.
Among these is the renowned Johnson & Johnson (JNJ), one of the largest and most diversified companies in the healthcare sector.
Another company could be Procter & Gamble (PG), a global leader in consumer goods, with a strong track record of dividend growth and solid financial fundamentals.
Additionally, Coca-Cola (KO) is also highly regarded by value investors and praised by Warren Buffet for its stable dividend payments and growth.

Risks and Benefits of Stock Picking

By following the SCHD ETF, investors currently perceive a Dividend Yield (TTM) of 3.68%.
However, with stock picking, i.e., selecting individual high dividend stocks, one could aim for a higher return.
This approach, though, also increases the risk of capital losses as it reduces diversification.

The ETF offers the advantage of automatic diversification and passive management, reducing the risk associated with selecting individual stocks.
Notably, the ETF holds more than 100 stocks and has achieved a 10-year cumulative return of 101%.
Although the return is generally lower compared to the classic S&P 500, which has grown by 180% in the last decade, SCHD has shown a linear growth and a more contained drawdown compared to the U.S.
stock market represented by the S&P 500.