so I've come across a lot of people who
want to put together a strong dividend
portfolio now sometimes some
inexperienced investors I've seen simply
run a screen for stocks or ETFs that pay
a dividend and then buy a few with the
largest dividend and then hope for the
best or sometimes people will just buy a
few of let's say the more popular blue
chip investments and then they assume
that they're safe because the blue chip
companies and they'll pay dividends well
if you'd like to build a great dividend
portfolio that can provide passive
income reliably then this video is the
one for you hi I'm Jimmy Capello
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okay let's get rolling so dividend
investments are often a popular topic
especially after the Great Recession in
oh wait oh nine mostly because stocks
that pay reliable dividends often bounce
quicker in troubled times than regular
stocks do so when I'm trying to put
together a dividend portfolio I try to
focus on more than just the dividend
itself yeah that's the end goal but I
also want to watch the diversification
to make sure I can help avoid risk and
the way I do this is I like to start by
identifying the goal of the portfolio
now the goal will depend it'll include
things like what is the target dividend
yield what's the target volatility
what's the time horizon different things
like that in every situation would make
the portfolio a bit unique for this
particular portfolio I'm actually
building it for a family member now he's
retired and he's got some money sitting
in a bank and he'd like to earn more
than the
one and a half percent he's currently
getting he told me that he's gonna he
wants to target five percent a year in
dividends and he can withstand a bit of
market volatility but wants to avoid any
long-term loss of capital he already has
a large portfolio of bonds so for this
particular portfolio I'm going to mostly
avoid bonds now I'm going to use ETFs
for this portfolio since it makes
diversifying much easier first I'm gonna
start with a large cap dividend ETF
called the pro shares S&P 500 dividend
aristocrat CTF the ticker symbols n OBL
their fee is 35 basis points which is
about one third of 1% they have 53
companies in it and these companies are
some of the biggest companies out there
companies like Clorox Lowe's Pepsi
target companies like that in fact the
average size of the companies in this
ETF is about 70 billion now what makes
this ETF valuable from a dividend
perspective is that it only has
companies that meet a few very specific
criteria they must be in the sp500 and
they have to have grown dividends for at
least twenty five consecutive years they
have to the ETF itself has to have a
minimum of 40 companies in it and
they're all equally weighted when the
when the ETF rebalances every quarter no
single sector can represent more than
30% of the whole ETF now this plays well
into our using ETS for diversification
so NL BL is currently trading at about
sixty four dollars a share and they have
a dividend yield of about 2.2 percent so
I'm a big fan of n o BL but the downside
of getting such large mature blue chip
companies is that we're only getting a
yield of about 2.2 percent so next I
look for something that could perhaps
complement it with growth so for that I
found the WisdomTree us mid cap dividend
ETF ticker symbol do n well this one is
a bit different because first off they
have almost 400 companies in it and the
ETF focuses mostly on mid cap which in
theory could add a little bit of growth
potential but
unfortunately their dividend yield is
also only about 2.1 percent now one
thing that they make a big fuss about
especially in their marketing material
is that they claim to be the only ETF
that is dividend weighted this means
that the larger the dividend yield the
larger the piece of the whole portfolio
that particular company gets compared
that to most ETF which are usually
market cap weighted like the S&P 500 or
equal weighted like Nov L when we just
saw and I think this is an interesting
way of doing it but they only rebalance
annually and to me this is a bit
confusing because what if something
happens to a particular company but
right before the rebalance and the stock
price falls and therefore because the
stock price is falling and the dividend
yield would appear to be much higher so
they would in theory get a larger piece
of this portfolio but what if there was
something fundamentally wrong with that
company that's why the stock price fell
well since the only rebalancing annually
this stock is stuck in the portfolio for
a whole year I think that could be
dangerous but on the other hand there's
over 400 companies in the ETF so even
the largest waiting isn't that large so
the effect of any one company could be
fairly minimal either way I like the
concept have any exposure to the mid cap
space in addition to the large cap space
both of us providing let's say a similar
dividend and the mid cave's
cap space generally offers more upside
potential than large cap space now since
I don't view these two ETFs as terribly
different from each other and their
yields aren't really where I need to get
them to be to achieve the 5% goal I'm
gonna combine these two into one
position size I'll get further into that
later in the video okay so for the 30 TF
this ETF is designed to give us some
exposure to the international market for
this particular portfolio I like wisdom
trees international dividend X
financials ETF ticker symbol do o this
ETF has a fee of 58 basis points and
their dividend yields about 3.7 percent
this is getting a bit closer to the 5%
target for the whole overall port for
well I like this ETF because it
primarily focuses on developed economies
mostly in Europe they also have some
things in Japan but they have a bit over
a hundred companies in ETF I think it's
102 actually and they're fairly
diversified across many sectors so I'm
happy with this ETF for our
international exposure so now I'm
looking to juice up the dividends a bit
if I'm gonna get the portfolio to be
above the 5% a year target I still want
to diversify but I need a higher yield
so up next I'm adding a real estate ETF
here I like vanguards real estate ETF
ticker symbol vnq V&Q has a yield of
about four point three percent and they
have exposure to a wide assortment of
real estate mostly in the United States
and they focus on buying REITs if you
don't see what REITs are you could see a
link in the description below for an
investing basics video that we had done
on REITs and how we think REITs will
fare if the Federal Reserve Rises raises
interest rates so V&Q has almost 200
companies and they cover tons of
investments like malls or residential
properties and commercial properties
things like that another perk of vnq is
that they only have a fee of about 12
basis points which is great for an ETF
that has a decent yield so we're not
quite at the 5% we need yet but as we
continue to round out the portfolio next
we're going to turn to energy now here
we're adding alarians MLP ETF ticker
symbol a MLP now they have a more
concentrated portfolio with just 28
names in it and they focus on midstream
companies midstream companies just in
case you're not sure there are the
companies that ship commodities like gas
and oil they call the midstream because
of where they fall in the commodity
extraction process upstream is where
they pulled the oil onto the ground
midstream they ship it downstream their
refine it and then they sell it so for
us this is a great addition to the
portfolio MLP currently has a yield of
about 8% and this is awesome but it
doesn't come without its downside
since midstream companies can be tied to
commodity prices and commodity prices
can be quite volatile that makes a MLP
quite volatile in fact of all the ETFs
that we're adding to this portfolio this
is the most volatile of all of them so
has a great yield but it comes with at
the expense of having increased
volatility now to make that even tougher
to accept mo piece fee is 85 basis
points which is tied for the highest
feat in the portfolio sure it's less a
mutual fund fees but as far as ETF
standards it's fairly relatively high so
when I analyze the performance of a MLP
to the ETF's already I realize that the
reason I like this is that they have a
relative relatively low correlation when
it comes to how the other companies
perform in different markets that lower
correlation is one of the reasons I
wanted to add this so the next addition
to the portfolio is another one that has
low correlation and this one is called
the e tracks Wells Fargo Business
Development Index BDCs is the ticker now
technically this isn't an ETF at all
it's an etn which is short for
exchange-traded note now functionally
there are some differences between an
ETF and etn especially regarding tax
stream and things like that but and in
etn is probably I should probably make a
video on that separately but for our
purposes it will act it will provide the
dividend that we need and I'm certainly
happy with that this one also has a fee
of 85 basis points same as a MLP and it
pays a dividend of just over eight and a
half percent which is awesome now what
makes this one useful from our
perspective is that it continues to
diversify the portfolio and it helps to
yield this particular UTI focuses on
business development companies BDC for
short
what bbc's do is they invest in small
and medium sized businesses and they
expect to grow those businesses and try
to profit from that think venture
capital another key point with bbc's and
actually MLPs and REITs to is
and this may help explain the high
dividend yields is that these types of
corporate structures are unique in that
they don't pay corporate income taxes as
long as they pay out the majority of
their profits usually ninety percent to
shareholders now this is good because
imagine a normal company typical
publicly traded company earns a million
dollars profit well they pay taxes we'll
call that two hundred thousand and let's
pretend what would be left is the eight
hundred thousand if they were going to
pay out even ninety percent of that
they're only doing it on eight hundred
thousand compare that to a b d c-- or
MLP or a REIT and if they don't have to
pay that first two hundred thousand
dollars in taxes well ninety percent or
nine hundred thousand dollars would be
paid out to dividends this leads to
higher dividends and ultimately that our
dividend yields okay now we're putting
the finishing touches on this portfolio
for a final etf i'm adding an
interesting one and this one is very
portfolio specific very goals specific
don't forget that this portfolio is for
a retired gentleman who's looking are
earn five percent a year from the money
that's currently sitting in the bank so
i'm assuming he's fairly protective of
that money and so far we we are pretty
close to making that happen so to avoid
the potential of extreme volatility
hurting us too much i've chosen to add
the iShares twenty year Treasury bond
etf the ticker symbols TLT so TLT helps
with volatility because as i mentioned a
few times with other ETFs i like to
analyze how ETFs perform relative to
each other how highly correlated are
they so just be sure on the same page
with correlation here is how correlation
works if two companies or two ETS move
exactly like each other one is up 5% the
other one's up 5% and one moves to
second now it moves to seven well if
they always moved exactly like each
other you have a correlation of one on
the other hand on the other end of the
spectrum if they move exactly opposite
up five down five ten down ten well then
you would get a negative correlation of
negative one and everything will fall
somewhere in that spectrum well here's a
matrix that I put together that looks at
the performance and the correlation of
our ETFs over the past few years so we
could see how correlated they are to
each other as you can see here as I
mentioned before a MLP BDCs and V&Q are
have a lower correlation compared to
something like n o BL and do n which are
fairly highly correlated well if you
look down here you can see TLT is
negatively correlated and this negative
correlation is huge but this means that
if the markets up well in theory this
will be down well if the market goes
down if there's ever a major pullback
this TLT holding will help smooth out
this performance since it in theory
should be higher now the fee for TLT is
only 15 basis points and it has a yield
of about two and a half percent this
isn't bad at all considering the
benefits I feel that it brings to this
portfolio so to wrap up if I wanted a
yield of let's say 6% well it's just a
matter of reworking the waiting's for
the portfolio for this portfolio I'm
blending and OBL and do n into the same
15 percent portion of the portfolio and
that's because they're so highly
correlated and that's about seven half
percent each and this keeps me from
getting to us stock heavy and then I'm
buying about 15 percent of do o for some
international exposure 15% of TLT tel
help offset in a down market
20% of BDCs and then about 17 or 18
percent of a MLP depending on how things
land when I actually execute the trades
so at the end of the day assuming this
breakout for the portfolio I'd end up
with the yield of about 5.1 percent and
this does exactly what I need but if I
wanted it closer to 7 or 6 I mean I
could simply eliminate TLT and perhaps
spread that that money between the bbc's
the REITs and the energy companies
this would increase my volatility sure
but if we were my personal portfolio I'm
less concerned about short-term
volatility and for me this would make a
lot more sense since I would be
reinvesting those dividends anyways
so I'd welcome a market pullback so I
could get in and buy each of these ETFs
at a cheaper price so what do you think
of the portfolio if you like these types
of ETFs and if you do would you do
something differently would you add
something or weighted differently or
strive for a higher yield I'm always
curious to see what people think and I
love hearing good ideas so hopefully you
found this interesting and if you like
this type of video hit the thumbs up and
that way I know about it I can make more
videos just like this and if you could
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look forward to seeing you in the next
video so until next time this is Jimmy
signing off