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My Favorite Dividend Stocks in One Fund

Check out these dividend stocks for great long-term return and constant cash in your pocket

There are few investing ideas more popular than dividend investing and for good reason. Dividend investing is one of the few stock market themes that can provide constant cash flow into your account and a positive return even when the rest of the market tumbles. I’ve been investing in dividend stocks more nearly 20 years and they are some of my best investments.

This is the last of four articles outlining my stock funds on Motif Investing. I created four funds across four themes on the stock investing website to focus on investments I want to hold over the next 30 years. Each of the four funds highlights a special theme or investment idea that I think will help me reach my financial goals over the long-run.

There is some overlap in the four funds. Energy stocks play a pretty big role in three of the four funds for their strong dividend yields and great long-term potential against the current weakness in the market. Stocks of utility companies are also in both the dividend fund and the retirement fund for their safety and dividends.

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Why Dividend Stocks are One of My Favorite Investing Strategies

This last Motif Investing fund is one of my favorite ways to invest. Dividend stocks are the few investments that have done well in good times and in bad. Through the 15 years to 2015, the stock market lost money a third of the time. That’s five years that investors saw their investments tumble and the annual loss averaged 16% each year.

Imagine losing $16,000 on your $100,000 of investments in a single year, now imagine that it happens five times in less than two decades!

Investing in dividend stocks provides a source of positive return every single year, without fail. Those dividend checks you receive in your account can’t be taken away even when the market crashes. Not only do dividend stocks provide a consistent stream of cash, but they also tend to beat the market return as well.

Over four decades to 2010, companies that regularly increased their dividend payment provided an annualized 9% return compared to a return of just 2% on companies that paid no dividend. Even companies that paid a dividend but didn’t regularly increase the amount returned about 7% over the period.

Dividend Stocks for Growth and Cash Flow

To focus on dividend stocks, I put together a group of 15 investments in my dividend fund on Motif Investing. While 15 stocks may not seem like a diversified portfolio, three of the investments are in exchange traded funds which hold a combined 404 stocks across energy, utilities and dividend-paying stocks. In all, the Motif fund has exposure to 416 stocks and no single company accounts for more than 6% of the portfolio.

As I’ve done in the other Motif funds, I’m using a core-satellite strategy where I invest the majority of the fund in diversified ETFs with smaller positions in individual companies. This gives me broad exposure to many companies in the overall strategy and lowers the risk that any one company will affect the overall investment too much.

A third of the fund is in the Vanguard Energy and Utility funds. The energy fund has been slammed with the 70% crash in oil prices and utilities have been hit as investors get ready for higher interest rates. The funds pay an average 3.4% dividend yield and is there really any doubt about the future for energy and utilities?

The remaining portion of the ‘core’ ETF investment is in the Vanguard Dividend Appreciation Fund. The fund invests in companies with at least 10 consecutive years of increasing dividend payments and pays a 2.4% dividend yield. These are super-strong dividend stocks in companies that were able to increase their payout even through the 2008 crash.

For the 12 individual dividend investments, I looked for companies that had huge cash stockpiles and a history of returning it to shareholders. I tried to look across a few different sectors that I hadn’t put in other Motif funds like technology and financials. Overall, the 15 investments pay an average 4.4% dividend return annually.

best dividend stocks investing

I started the fund in early February but back-testing the investments shows the dividend fund beat the return on the S&P 500 by 1.4% annually over the last 10 years. That’s a pretty strong record and even accounts for the big losses on the energy stocks over the last couple of years. Over the next ten years, as energy prices rebound, I expect the fund to do even better and beat the stock market by a wider margin.

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