4 ESSENTIAL Types of Dividend Stocks
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In a recent episode of Ari Gutman’s Masters of the Market series, he had on Lanny from the Dividend Diplomats—an instant click for me. Both of these guys are YouTube favorites of mine, and hearing them together was like getting a masterclass on dividend investing.
At one point in the conversation (about 43 minutes in), Ari posed a simple yet thought-provoking question to Lanny:
"What’s your ideal dividend yield range?"
In the few years I’ve been investing, I'm surprised to have never heard someone ask that before. I thought it was a great question, and when I turned it on myself, I realized that I don't have a set dividend yield range I am looking for.
I tend not to think about the dividend yield in terms of minimums or maximums, and there’s a simple reason for that: I don’t look at the dividend yield by itself in isolation. The dividend yield is just one piece of a much larger puzzle.
With that said, I do categorize dividend stocks into different groups, and have come up with four of them based on their general yield and dividend growth rates. In my portfolio, I try to strike a balance between these four groups.
Stalwarts: Low Yield, Low Growth
These are the classic, reliable “sleep-well-at-night” stocks. Companies like Procter & Gamble (PG) fall into this category, offering a modest dividend yield with slow but very consistent dividend growth (they have a dividend growth history of over 65+ years).
Other Stalwarts include Coca-Cola (KO), Johnson & Johnson (JNJ), and Colgate-Palmolive (CL).
Source: Seeking Alpha | PG dividend stats
While I appreciate the reliability and defensive nature of this type of dividend stock, I wouldn’t want my entire portfolio to be filled with them.
I prefer to prioritize companies that offer more in terms of dividend yield or dividend growth, but I still think Stalwarts have their place in a well-balanced portfolio. Owning a few of these companies can provide a layer of safety and dependability that’s harder to come by with other types of investments.
High-Growth Stocks: Low Yield, High Growth
These companies may start with a lower yield, not unlike a Stalwart, but they make up for that with their incredible dividend growth rates. It’s common to see stocks in this category come with double-digit dividend growth rates.
Visa (V) is one that instantly comes to mind. Other names like Lowe’s (LOW), Snap-On (SNA), and the 4 stocks in this video are great examples too.
Source: Seeking Alpha | V dividend stats
In my experience, many investors see the low starting yield of these stocks and are immediately turned off by them. The problem with this is that they’re only looking at the dividend yield in isolation, which ignores the incredible power of long-term dividend growth.
While it’s true that high-growth dividend stocks won’t make your income skyrocket overnight, their ability to compound over the years is pretty unbelievable. Because of that, these stocks are perfect for investors with a longer time horizon who don’t need to live off their income quite yet and can afford to let dividend growth work its magic.
High-Yielders: High Yield, Low Growth
The polar opposite of high-growth stocks, high-yielders offer hefty dividends upfront but don’t typically offer much in terms of dividend growth. I generally consider anything with a 4% starting yield or higher to be a high-yield stock.
Some of these companies offer yields as high as 10%, but at that point, you’ll really want to study the company’s dividend safety and sustainability. After all, the last thing you want is to be on the receiving end of a dividend cut—here are a few warning signs to help you avoid that.
One of my favorite high-yielders is Enterprise Products Partners (EPD), a dividend aristocrat that currently offers a yield above 7% and an exceptional 25+ year dividend growth streak.
Source: Seeking Alpha | EPD dividend stats
Other high-yielders I own include Altria Group (MO), Main Street Capital (MAIN), and Blue Owl Capital Corporation (OBDC), all of which have proven to be reliable payers so far.
Double Trouble: High Yield, High Growth
These stocks are “trouble” in name only. In reality, Double Troubles are rare opportunities in the dividend investing world that offer both a high yield and hefty dividend growth.
A great example in my portfolio is VICI Properties (VICI), which combines a killer starting yield of around 5% with still-respectable dividend growth.
Source: Seeking Alpha | VICI dividend stats
Finding stocks that are double trouble in the dividend department requires some digging, but they can be real game-changers when you do.
Portfolio Breakdown
As I mentioned, I aim for a balance across all four types of dividend stocks in my portfolio and think I've done a pretty good job of that so far. Here’s my portfolio breakdown right now:
Stalwarts: 16.56% total weighting
High-Growth Stocks: 40.54% total weighting
High-Yielders: 33.47% total weighting
Double Trouble: 9.43% total weighting
With that said, I want to hear from you: Which types of dividend stocks make up the majority of your portfolio? Write to me here and let me know.
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I've been actively posting on Blossom since November, and I absolutely love the community over there. With over 120,000 DIY investors, Blossom is buzzing with all sorts of different investment ideas. The coolest part is that you can see everyone's portfolios, which you can automatically link within the app!
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IN MY PORTFOLIO 📈
Portfolio performance provided by Snowball Analytics
ICYMI 🎥
My HOLY GRAIL Dividend Stock Just TANKED - Time To Buy?
One of my holy grail dividend stocks just tanked, dropping more than 8% in share price in the last week. Is it time to buy the dip?
CAREFULLY CURATED 🔍
📺 Time To Buy Realty Income? - I've been getting into The Patient Investor on YouTube over the past couple of months. I really like how he analyzes companies, and I thought this was an especially good breakdown of "THE Monthly Dividend Stock."
🎧 The Impact of Debt - This conversation was a true masterclass between two titans of the investing world: Howard Marks and Morgan Housel. It's an absolute must-listen.
📚 Dividend Raises Coming Up - This article breaks down 13 expected dividend raises coming in September from companies like LMT, PM, and SBUX.
SINCE YOU ASKED 💬
"How much would you suggest to invest every week or every month?"
- Adriana | YouTube
In general, I would say to invest as much as you can, and as much as you feel comfortable with.
If you're just starting out, it's probably better to begin with a smaller amount until you get the hang of things. You can always increase your contributions as you get more comfortable with what you're doing, and I encourage you to do so.
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
Last week, I asked readers if they had any good book recommendations for me. Here are some of the responses:
Christophe said: I would recommend Chip War by Chis Miller.
Bharat said: My recommendation for you is to try The Heart of Success by Om Swami. His memoir, If Truth Be Told, is also a very good read along with a book on parenting: The Children of Tomorrow. On meditation: The Million Thoughts is also one heck of a book!
Janis said: I just bought Mastering the Market Cycle by Howard Marks! Looks good!
LAST WORD 👋
Last week, I had the distinct pleasure of FINALLY being able to meet the legendary Ian Lopuch, AKA PPC Ian.
When I was first getting into investing, before I even started posting videos on YouTube, Ian's channel was one of the first I really dove into. The way he talked about dividend investing made me feel like I could do it too, even though I was starting out with practically no experience.
What really resonated with me was his focus on companies that were familiar and easy to understand, like SBUX, PG, and JNJ. Those were some of the first dividend stocks I bought, and they’re still three of my biggest positions today.
At any rate, being able to meet and spend time with Ian was a pretty full-circle moment for me. I might have eventually found my way to dividend investing on my own, but Ian definitely played a key role in putting me on this path.
With that said, if you're not already subscribed to Ian's channel, you can (and definitely should) check it out here.
