💰 Building a High Yield Portfolio!
Proving Everyone Wrong. 🎯
One of the most common mistakes beginner investors make?
High yield investing.
However, despite some high yield stocks often times carrying more risk, we’ve been able to build a High Yield Portfolio that:
Yields 9.30%
Has seen share price appreciation
Has seen dividend growth
Has a healthy payout ratio
It’s incredibly easy to simply select high yield funds to boost your starting yield.
It isn’t easy to achieve a high yield while also seeing the other three metrics improve at the same time.
Today, we will be diving into our High Yield Portfolio, reviewing and updating our thoughts on each of the positions.
🧩 The Composition
How many stocks in the S&P 500 yield above 6%?
Just 10.
How many stocks in the S&P 500 yield above 7%?
Only 1.
And to be honest, very few of those stocks would we ever consider for our High Yield Portfolio.
So naturally, we have to turn outside of where most of the market looks to find high yield opportunities.
For our High Yield Portfolio, we primarily focus on five asset classes:
Part of the issue most investors have with high yield investing is the fact that the way we analyze each of these assets is radically different from the way we analyze more traditional equities.
As of right now, we have added six positions to the High Yield Portfolio.
Here is the current composition by asset class:
Covered Call ETF: 1
MLPs: 2
REITs: 1
BDCs: 0
Preferred Shares: 2*
Business Development Companies are the only asset class we have yet to add to our portfolio.
This has proven to be a wise move, as the BDC market has been hammered over the last year, with many BDCs reducing dividend payouts as well.
I put out an article back in March explaining the dangers of the BDC market right now, which you can see here.
📈 The Results
So what have the results of our High Yield Portfolio been thus far?
So far, the results have been incredible-
Not only from a return perspective, but more importantly, from a fundamental perspective.
It’s great that every position in the portfolio has seen positive total returns so far.
But it is much more important that we build a portfolio that has the underlying fundamentals that allow us to achieve our High Yield goals:
Deliver a sustainable dividend yield of around 8%
Preserve capital (no long-term value erosion)
Provide predictable cash flow
So far, our portfolio has done exactly that and more.
As of right now, our portfolio is yielding 9.30%!
More importantly, this yield has been derived in a way that our dividend income does not fall if the overall NAV of our holdings falls in the short term-
Which is incredibly important to note, because this is not true for most high yield income ETFs on the market.
On top of this, our underlying holdings are growing earnings, and as a result, many of the holdings in our portfolio have already grown their dividend payouts, or are expecting to do so this year.
In fact, I recently spoke with the fund manager of the covered call ETF in our portfolio (you can read that interview in the Dividendology Database), and he stated he expects to be able to sustainably hike the dividend payouts of the fund this year, despite the fact the fund was yielding over 11% when we bought it!
And of course, the payout ratio of our underlying holdings is incredibly low for a High Yield Portfolio.
So yes, I’m certainly excited about the performance of the portfolio in the short term-
But in reality, this means very little.
I’m much more concerned with the evolution of the underlying fundamentals with the positions in our portfolio.
And right now, this is where our portfolio excels.
💡 Finding Opportunities
How have we been able to find such incredible opportunities?
It’s actually quite simple.
By sorting through thousands of opportunities.
And here is the beauty of high yield investing:
There is very little analyst coverage.
Yes, this makes it incredibly difficult to find opportunities, but this also means there are market inefficiencies leading to much greater opportunities for those willing to roll up their sleeves and learn the nuances of these asset classes.
It’s how we:
Identified a position yielding over 10%, that also can cover its dividend payment 48 times over
Identified a position yielding over 8%, growing distributions by double digits
Identified a position yielding over 11%, growing distributions multiple times a year
It takes an incredible amount of work to find these opportunities-
But it is certainly paying off.
Let’s dive into the individual holdings in our portfolio, and look at a brief update from each of them.