When the stock market crashes, all you have
are those dividends for a positive return. I’m starting 2019 with a dividend portfolio
that will produce solid returns no matter what happens to the market. I’m revealing how I pick stocks and my five
favorite dividend stocks. We’re talking dividend investing today on
Let’s Talk Money. Joseph Hogue with the Let’s Talk Money channel
here on YouTube. I want to send a special shout out to everyone
in the community, thank you for taking a little of your time to be here today. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. Today’s video is a big one, the first in
a year-long investing challenge with some of the biggest channels here on YouTube. I and the other YouTubers in the Grow Your
Dough challenge are going to be tracking our portfolios, updating you each month to see
who can produce the highest returns. 2018 closed in the red and this year could
be a turning point for investors so these are going to be some great ideas to help you
make your money work for you. In this first video of the challenge, I’ll
show you how I’m setting up my portfolio for max returns this year. I’m revealing how I pick dividend stocks
and my five favorite high-yield stocks to start the portfolio. To track my portfolio of stocks, I’m investing
$1000 on M1 Finance, a no-fee platform that let’s you pick your stocks and automatically
invests any new deposits across your group. Unlike some of the other investing apps, M1
doesn’t charge a monthly management fee which is why I’m using it for no-cost investing. Subscribers in the community here know that
I usually recommend a diversified portfolio of growth stocks, dividends and value but
there are a few reasons I’m focusing on dividends for the challenge portfolio. This late in the economic cycle, I want to
stay away from growth stocks. These are companies that have been bid up
over the last ten years on sales growth, think companies like Netflix and Facebook. It’s not that these can’t be good investments
but that growth theme could run face-first into a slowing economy and these will be the
stocks that get hit the hardest. While I like the value theme, I also want
to get that positive cash return from dividends. If the stock market crashes, those dividends
are a big part of the return to investors and a great opportunity to buy into the market
at lower prices. We see here that dividends have accounted
for between 17% to 73% of the total return to stocks. In decades with bad crashes like 2000, dividends
accounted for almost 100% of the returns. So I’m using some of the value investing
techniques we see in The Intelligent Investor and those used by Warren Buffett, as well
as important dividend metrics, to put together a portfolio that not only produces cash flow
but also has solid price upside. Now I spent more than a decade as an equity
analyst for venture capital and private clients. For each of the dividend stocks I’ve picked
for the portfolio, I’ve created a full cash flow analysis and report. We won’t cover everything in there here
but I want to take you through the most important measures I use when looking for these stocks. Then, I’m going to highlight the first five
stocks in the portfolio and why they should be in your dividend portfolio. First, I like to do an initial screen of increasing
revenue and cash flow from operations. I’ll also look for a debt-to-equity ratio
below the industry average and that total debt is declining for the last couple of years. This is just a basic check on financial health
but makes sure you get started right with companies that are growing organically instead
of through debt-fueled growth. From this quick screen, I’m going to look
at stocks paying a 3% dividend yield or more. The broader market pays about a 1.8% yield
so we’re filtering here for stocks with the commitment to returning shareholder cash. Finally, I’m going to look at some qualitative
ideas like a competitive advantage the company has over competitors. I’ll be looking at the payout ratio, or
how much of the company’s earnings are paid out as dividends, and dividend safety to make
sure the company can support those payouts. I’ll be using M1 Finance to track the portfolio. Since the site doesn’t charge any trading
fees or commissions, it’s the best way to track returns on the stocks. I pick the stocks I want and M1 automatically
invests any cash in the account including reinvesting the dividends. Besides picking from any stock or fund on
the NYSE or Nasdaq, you can also invest in expert portfolios. These portfolios, called pies, either invest
on a theme like retirement investing or dividends or they track money managers like Warren Buffett
or Carl Icahn. My first pick for the dividend portfolio is
from a theme that could be one of the biggest opportunities of 2019. I’m talking about Chinese stocks and specifically
the China Life Insurance Company, ticker LFC with a 3.1% dividend yield. Long before the U.S. stock market started
crashing in October, Chinese stocks were already tumbling into a bear market over fears of
slowing economic growth and the trade war. A lot of these stocks are down thirty- and
forty-percent from their highs and trading for half the price multiples of U.S. stocks. Years from now, when we look back on 2019,
this could be one of the biggest opportunities, being able to pick up these Chinese dividend
stocks at a huge discount. Look, I’m a patriot to my bones but there’s
no denying that China is going to be a bigger part of the global economy. You need exposure to the market, exposure
to china-based firms that are going to benefit in a way that U.S. companies trying to do
business there just can’t get. With that massive drop in Chinese stocks last
year, there are two forces that could drive these names higher in 2019. First is just the sheer size and growth in
the economy. Even at a slowing rate, China’s economy
is growing at 6.5%, about three-times the economic growth in the States. That means the Chinese are adding nearly $900
billion to their economy, almost twice what’s being added to the U.S. economy. Second here is that China is a command economy,
the government has more power in controlling the economy than I think most investors give
it credit. President Xi has tremendous resources from
that trade surplus and economic growth, he’s not going to let the economy slow and isn’t
going let it look like he’s losing the trade war. Going into the 2020 elections, President Trump
doesn’t want a protracted trade war that’s going to weigh on the U.S. economy. The odds here are excellent that the two get
together to find a solution that makes both look good and resolves the trade war this
year. As for China Life, the company controls 19%
of the Chinese life insurance market, a country of almost 1.4 billion people. That’s more than four-times the population
of the U.S. but the market is still undeveloped and penetration is low in China. I like China Life as a good rebound play and
dividend in 2019 but this is definitely one of my top picks for a long-term investment
as well. The shares trade for 11.2-times earnings,
that’s about a 40% discount to the average of 18-times earnings on shares of U.S. life
insurers. China Life has a payout ratio of just 31%
so plenty of earnings there for growth and dividend sustainability. Our second dividend stock here is specialty
chemicals company Olin, ticker OLN and a 4.2% dividend yield. The company is a leader in chlorine derivatives
and epoxies, number one in many of its markets, but also has this Winchester firearms division
that frankly makes very little strategic sense. The Winchester segment accounts for just 10%
of sales and 5% of earnings so certainly not a material driver. I would not be surprised at all if the segment
is spun off or sold sometime in the future to allow management to focus on strategic
areas. This could unlock some significant value and
push the shares sharply higher. Pricing in chemicals has been weak over the
last few years but is turning and the company could see a turnaround this year. Shares trade for just 10-times earnings, a
discount compared to other chemicals companies, and earnings are expected 12% higher over
the next year. The payout ratio is just 41% so that 4.2%
dividend is fairly safe and there’s a lot of room for price appreciation here. The third dividend stock in our portfolio
is another theme I’ve been following lately and one of the biggest investments in Warren
Buffett’s portfolio. Banks and community banks specifically have
a great opportunity to do well over the next few years on less regulation and higher long-term
rates. So I’m adding Bank OZK, ticker OZK with
a 3.7% dividend yield. The regional bank has 251 branches mostly
in the Southeast and Texas and has been named the top performing bank in the country for
eight consecutive years. Just about every measure here from return
on assets to return on tangible equity and non-performing loans, two very important bank
measures, are all better than the industry average. The shares trade at a price-to-book value,
a better measure for banks versus price-to-earnings, of just 0.76-times. So shares trade for less than book value of
the bank and about a third the average for banks. Against that valuation, Bank OZK has increased
its tangible book value at a 22% annual pace over the last decade. There’s a lot of upside here. Not only are the shares trading at a steep
discount, so if investors come back to the stock it could see a 30% return just trading
at book value, the shares are also going to appreciate as that underlying book value increases. Our next two dividend picks are going to be
from a recent video on the channel about my favorite dividend stocks that aren’t really
stocks. We’re talking about real estate investment
trusts, REITs, and master limited partnerships or MLPs. These two investments are special types of
companies, partnerships in companies that own real estate or energy assets like pipelines
and storage. Because of the way they’re set up, they
pay dividends two and three-times higher than traditional stocks and they add some excellent
diversification to your portfolio. Now something I detailed in that prior video
is the fact that you can’t value these REITs and MLPs like you do other stocks. You cannot use price-to-earnings because earnings
just don’t make sense in these businesses that have high amounts of depreciation. Now I walked through the two special ways
to look at these investments in that video. I’m going to link to it in the video description
and if you’re going to invest in REITs or MLPs, please watch that video because you
need to know how they differ from other stocks. For our two picks in the dividend portfolio,
we’re going first with the REIT and MLP funds here to get that broad exposure to the
themes. I’ll be adding some solid individual REITs
and MLPs later but wanted to start off with diversified bets across real estate and energy
assets. So first we have the Vanguard Real Estate
ETF, ticker VNQ, which is probably my favorite exchange traded fund. It holds shares of 187 real estate companies
spread across all the property types and across the United States. The fund pays a 4.2% dividend yield and has
returned 14.7% annually over the last decade. Beyond the solid cash yield and return, this
is a great opportunity to take a little risk out of the stock market and have it in a real
asset like real estate. The fund has been under pressure over the
last couple of years because of those rising interest rates. Obviously with the leverage used in real estate,
any time you have rising rates, that’s going to weigh on returns but we’re seeing signs
that the Fed will slow its rate hikes in 2019 and that could unleash a lot of value in real
estate. We saw the real estate fund in blue here outperforming
stocks through 2017 when rates started heading higher. Looking more recently with that market crash
and we’re seeing real estate outperform again. Our fifth dividend stock is in the Alerian
MLP Fund, ticker AMLP. The fund holds shares in 25 companies that
own energy pipelines, storage and processing with an average company size over $11 billion. Just like those REITs, MLPs pay out most of
their profits to dividends so that means an extremely high dividend yield. For the AMLP, that’s an 8.5% dividend yield
which is more than four times what you get on most dividend stocks. Now that also means that the share prices
of these companies doesn’t increase as much as stocks of companies that hold a little
more back for growth. You can get some great returns though if you
time these investments in MLPs for times when the industry is hurting. MLPs really took it hard in 2014 when oil
prices bottomed and have started to come down again on another bout of weakness in energy. But if you look at where they bottomed in
February 2016 and then rebounded 47% to end the year, that was double the return on the
broader market and I think we could be in for something similar this year. I’m adding five more dividend stocks to
the portfolio next month but we’ve already got a portfolio with an average 4.7% dividend
yield. That’s more than twice the average on the
S&P 500 and there is a lot of price return potential in some of these names. Make sure you subscribe to the channel and
follow the portfolio. You can also set up your own dividend portfolio
through M1 Finance with the link I’ll leave in the video description below. We’re here Mondays, Wednesdays and Fridays
with the best videos on beating debt, making more money and making your money work for
you. If you’ve got a question about money, just
subscribe to the channel and ask it in the comments and we’ll answer it in a video.

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65 thoughts on “5 Highest Paying Dividend Stocks to Buy Now [Stock Market Challenge #1]”

  1. Must watch for all dividend investors! 💰 Three dividend calendar strategies that WILL maximize your cash yield –> https://youtu.be/hAZxIAKUalI

  2. Bow Tie Don, China is the 2nd biggest economy and Japan is the 3rd. I have an ETF fund in foreign companies ticker VEA, Emerging Market ticker VWO, got VNQ on my Acorns account. Most of my stocks are ETFs and individual stocks.

  3. Happy to be a part of this great challenge and that's a great strategy you've picked. Can't wait to see how this challenge is going to go down.

  4. For the challenge I picked completely random stocks and a random number of stocks and through $1000 into it. Well, I actually did this right before the challenge video Jeff put out, but I am using that portfolio for it. Let's see how it performs in 2019. 😜

  5. @Let's Talk Money! with Joseph Hogue, CFA I am a new investor and want to understand how the dividend is paid out. I know it can be reinvested into the same stock bit if you want it as income is it paid as a cheque (check) or to a bank account?

  6. New subscriber here. I am hoping you (or someone) could put my mind at ease regarding these new brokerage platforms (M1 specifically). My concern is the longevity of the brokerage – idk how comfortable I am putting more than $10k and/or retirement in a brokerage that has no history. I am used to traditional brokerage firms but am very interested in M1 and have been for awhile. What happens if M1 ceases to exist? Thoughts/comments? Thanks!

  7. Great information.. I jumped back into Altria (MO) in December before the ex-dividend date. The stock dropped 20% in December.. I'm down $100k.. Now I'm on the fence about holding for a rebound or jumping back into the Vanguard High Growth Index Fund.

  8. How do you like the aforementioned stocks and etfs over the longterm suchas in a Roth IRA? I’m looking to put some diversity into my portfolio. Ty

  9. My Chinese etf KBA is down 27% – i knew i should not have trusted those Orientals. GGGRRR….🤬. Can't wait for the trade war to end

  10. I have a question. The Alerian MLP now since it is a partnership what if any are the tax ramifications? Also is taxes a major concern for the Alerian MLP if it will be added to a Roth IRA. TY

  11. Just came by this video by chance and loved it. This is my first year in stock investing and, like most academics, not good with money. But have to try and have taken your suggestions. Let's see how it goes.

  12. I love the returns from REITs and MLPs but them being taxed as income scares me. If i funded them via a roth IRA would the dividends be tax exempt if they were reinvested into to the IRA?

  13. I avoid oil and pharmacy stock, I think these companies are holding back future innovation so they can hold their monopoly. if they are found out the prices will drop. I think Trump is suppressing oil prices, stocks that do well with high oil may not do very well but at least gas at the pump will be reasonable. The REITs seem decent for now, another interesting stock is called FUN on the exchange- you make money on people riding roller coasters. UPS seems like a good idea with everyone ordering online.

  14. great stuff man but one question how the heck are you going to win the #growyourdough challenge giving out all the gems? lmao

  15. Can you help me to understand PE? Then help me build the understanding of Forward PE and Forward PE as a 5 year average. Could this strategy of reviewing stocks in combination of a stock dividends % help find value in the market? Love what you do!

  16. Good morning Mr. Hogue, I am a huge fan of channel and follow all your advice. Thank you for the help.
    I was wondering, can you please do a video about the 10 best stocks to pick to open a retirement account (especially with some REITS)?
    Thank you.

  17. Oh my God this is the second video I've watched from this guy and he is incredibly smart. Thank you so much.

  18. If I buy coke at $ 45.75 with $10000. That would be 218 shares. Does that mean I only get $7.6 dollars annually.

  19. Hi Joseph, what i have observed with VNQ and AMLP is that it may have a very competitive dividend payout , but doesnt have a history of an overall performance return. I understand this is video is focused on high div payout stocks and ETF, but don't you pay attention to the past performance history( I also understand that past performance does not guarantee future returns). So would it be fair to assume that this should ONLY be held for its dividends. Would it make sense to have these stock/etf in your retirement account?

  20. Hi Joseph, when it comes to retirement accounts and holding dividend stock/etf/mlp, does one need to hold it thru its ups and downs( lifetime) and just take advantage of the dividend yield or would it make sense to sell them for profits/loss ( like any other stock) as and when the situation arises.?

  21. Great presentation Joseph! I hope you make a video someday on how to figure out the actual stock valuation with regard with P/E ratio, P/B and other key parameters and also, calculating the buy zone on the stock chart. There are a lot data to consider while purchasing the stock though still trying to figure out which one are more important and what would the range for them.

  22. What are your thoughts on big T? Their level of debt is worrying but with the potential for streamed media and 5g there is definitely a major opportunity for growth!

  23. Your cost basis goes down when MLPs issue dividends. Its makes a big difference in you taxes and can lead to large capital gains. Its why I stay away from MLPs. Can you discuss please?

  24. Hello, does anyone have the current list of all the stocks that are in the challenge can someone point me in the right direction so I can purchase the stocks and put them on M1 I know I'm late to the party but I've always been a party crasher.

  25. One more thing you would want to look out for is payout track record. What have they done in the last 10 years regarding dividend? If they Are the same for 10 years, that's commendable… If they increased it, way better… If they cut the dividend, run for the hills. General Electric 2009… Case in point.

    If you look at the dividend track record for China life insurance, it's terrible. The 3% yield at the time of this video is meaningless because the dividend is about as steady as an elevator. For dividend sake, this company is terrible.

  26. Love your stuff. Im from the UK and I’m struggling to find all the shares, dividend investments you talk about? Is there a platform here that has them all or are they simply US based? Thanks!

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