The Vanguard Dividend Appreciation ETF (VIG) is the largest and most popular dividend ETF on Wall Street. It boasts an amazing $60 billion in assets under management, and holds about 300 of the largest dividend stocks.
And it yields a miserable 2.1%.
That’s because, like many index funds, VIG weights stocks by size. That means companies like $450 billion drugmaker Johnson & Johnson (JNJ) and $1.8 trillion Big Tech icon Microsoft Corporation (MSFT) alone represent about 7% of the portfolio – even though they pay relatively light yields of 2.5% and 1.1%, respectively.
The false promise of index funds like the Vanguard Dividend Appreciation ETF is that you can “set it and forget it.” You’re supposed to get an easy way to invest in the strategy of your choice, and you’re supposed to get it in a diversified way.
But funds like VIG simply don’t deliver.
Investors who are truly interested in yield need to take a more hands-on approach. But that doesn’t mean you have to craft your own bloated portfolio of 300 stocks.
All you need is about 20 or so of the right ones.
Let me show you, using two of my favorite picks right now as representative examples.
Medical Properties Trust – 11.3% Yield
Healthcare REIT Medical Properties Trust (MPW) is a roughly $6.5 billion “net lease” hospital company. That means it owns about 430 facilities across nine countries, and contracts with operators that are responsible for taxes, insurance, and maintenance costs on the properties in a property in addition to rent.
That makes for a great revenue stream, as you can imagine. The 29-cent quarterly dividend is good for a mammoth 11.3% yield right now. What’s more, it reported funds from operations of 45 cents per share in its October earnings report – more than covering that payout. The icing on the cake is that MPW has raised its dividend for each of the last eight years, spanning even the pandemic-related disruptions that struck some stocks, proving its commitment to delivering for shareholders.
It’s also worth noting that hospitals are a pretty recession-proof business, too. That should provide a bit of peace of mind.
Of course, there’s a bit more risk here than in entrenched but low yield Microsoft. But with a mammoth yield and a business model that focuses on reliable tenants, there’s reason to think the risk may be worth the double-digit dividend.
Kraft Heinz – 4.3% Yield
The flip side of the higher risk MPW is rock-solid Kraft Heinz Company (KHC). This $45 billion stock has one of the best portfolios of consumer brands on the planet, and reliable revenue stream from its Heinz Ketchup, Kraft Macaroni and Cheese and other items is sure to keep flowing for many years to come.
It’s no slouch, though, with a yield of 4.3% that’s more than twice that of the S&P 500 index. It’s also up slightly on the year in an otherwise hostile market environment.
Chances are, you’re already familiar with the basics of Kraft Heinz, so I won’t bog things down with needless detail. The stock pretty much speaks for itself.
Admittedly, there have been some who were burned by this stock a few years ago after a debt-bloated megamerger. But this stock may now be on the rebound after outperforming the S&P 500 this year, and just posting great Q3 earnings that topped expectations on revenue and profits. The company raised prices significantly to more than offset the pressures of inflation – which is only something a company with gold-plated brands like Kraft Heinz can pull off right now.
Sure, Mac & Cheese isn’t sexy. When the bulls are raging on Wall Street, there’s admittedly not as much appeal to a stock like KHC. But in a “risk off” environment like this one, there’s a lot this consumer staples icon has to offer.
Both Sides of the Barbell at Work
When building a truly balanced portfolio, these are the kinds of stocks you should be looking for as an income investor. Medical Properties Trust and Kraft Heinz are very different stocks, but together they balance each other out very well – and offer an average yield of 7.8% between them.
I call this the “barbell” approach.
You see, there’s not a lot of point in bogging down your portfolio with the same old filler that’s in every disappointing index fund. If you want to track the market or settle for middle-of-the-road returns, then why not just buy the aforementioned Vanguard dividend fund that’s so popular with everyone else?
But if you’re smart, you can build a balanced portfolio by focusing on the extremes. On one side you have the strong dividend stocks that you can buy and hold forever with confidence, like Kraft Heinz. On the other you have more tactical plays that have higher risk but double-digit yields that have a chance of delivering phenomenal paydays.
Do that with 20 stocks instead of two, and then you have yourself one heck of a high-yield portfolio!
Don’t Settle for the Same Old Index Funds
It’s baffling, but some investors are still trusting in the same old approach to their portfolio even after the deep declines of the last year.
That’s a big mistake. Because things may get even worse before they get better.
The truth is we are seeing a massive restructuring of what works on Wall Street, as well as what works in the global economy.
In many ways, you’re familiar with this story already. Old school companies like JCPenney, Gold’s Gym, and Hertz simply didn’t adapt… and were forced into bankruptcy in recent years.
Then came the pandemic that disrupted everything we thought about the modern workplace, followed in short order by a supply shock that upended energy markets.
And we’re just getting started.
This “Great American Reset” is tearing index funds to pieces, because vanilla ETFs that are weighted by market cap are over-reliant on the old favorites and overlook the stocks that have the most to offer in the environment of the future.
Let us show you how to change course and reallocate your portfolio to the right stocks, at the right time.
We’ve just published two important reports that will show you the way — 8 “Old Guard” stocks to SELL immediately, and 7 American Reset stocks to BUY for predictable and consistent returns of +15% per year.
All this, without taking on unnecessary risk, no matter where the S&P 500 is headed.
Don’t settle for the same old underperforming index funds. Tap into the power of these “hidden yields” and start seizing +15% annual returns.
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