For those that follow my blog and my Twitter feeds, you are aware that my current portfolio is heavy with ETFs, About 82% of my investment portfolio consists of ETFs and the balance of 17% are individual company stocks. Within those ETFs I have the following areas invested in:
- Real Estate – VNQ (Vanguard Real Estate ETF).
- Energy – VDE (Vanguard Energy ETF)
The other 2 Vanguard funds are concentrated on high value & high dividends across many sectors (VFIAX & VYM).
I would like to add a healthcare ETF and a technology ETF to my portfolio. I am looking at VGT and VHT. Both are pricey by my standards but both are paying decent dividends, and that what I in this for. So, I now have to go through the decision process of which one do I invest in first. I will be investing in both but it’ll be completed over the next few months. I do have other expenses that I am obligated to handle first.
I looked at the data for VHT (Vanguard Health Care ETF) via my TD Ameritrade account. Currently the fund is trading at $204.84 per share which is a bit high for my purposes. In looking at this fund’s 52 week range you see that its share price is at the end of the high range. The chart shows the fund’s value is increasing so I doubt that the price will be dropping drastically, barring any unforeseen circumstances. But now for the key question. What about the dividends? VHT has an annualized payout of $2.55/share (a 1.24% yield). If the share price were to drop to the other end of the price spectrum of $138.11 the yield would then be 1.85%. The average 5 year dividend growth rate is 23.01%.
According to Morningstar the risk factor for this fund shows that it’s rated as Below Average and the returns are rated as Average. Both of which are a positive factor for me. Morningstar has the fund designated as a Large Blend fund. The one thing that I am not happy with for this fund is that the Net Expense Ratio is about 0.10%. This is the maximum I would prefer.
The market Return for the funds is 6.39% so far for 2020, For 2019 it was 21.86%. Some of the company stocks that are included in this fund are:
- JNJ – Johnson & Johnson
- UNH – UnitedHealth Group
- PFE – Pfizer Inc
- MRK – Merck & Co Inc
- ABT – Abbott Laboratories
- TMO – Thermo Fisher Scientific Inc
- ABBV – AbbVie Inc
- AMGN – Amgen Inc
- BMY – Bristol-Myers Squibb Co
- MDT – Medtronic PLC
The other Vanguard fund that I checked out on TD Ameritrade was VGT (Vanguard Information Technology Index Fund ETF). This fund is another pricey one that is trading at its 52 week high range of $313.59, Morningstar has this fund rated Below Average risk and Above Average return. They also have it designated as a Large Growth fund.
In digging into the data for this fund I find that the dividend payout is annualized at $3.00/share (a 0.96% yield). In screening just for high paying dividend stock with a yield greater than 5%, this fund would not have shown up on my radar. But is still pays a decent dividend even if the share price makes it a challenge for the average person to purchase more than just a couple of shares. The Net Expense ratio is also at the maximum preferred ratio of 0.10%.
The returns for this fund for 2020 so far are 21.33%. For 2019 the returns were 48.61. Some of the company stocks that are included in this fund are:
- AAPL – Apple
- MSFT – Microsoft
- V – Visa
- MA – Mastercard
- NVDA – Nvidia
- PYPL – PayPal
- ADBE – Adobe
- INTC – Intel
- CSCO – Cisco
- CRM – Salesforce
I really like both of these funds but I can’t afford to buy both of them at this time. So, I have to make a decision which one I want to buy first. It comes down to 2 factors: a) share price, and b) dividend payout (after all, that’s what I’m interested in). They’re both pretty close in both of these areas.
The final decision at this time for me will be that I will be buying the funds in this order:
- VHT (Vanguard Health Care ETF)
- VGT (Vanguard Information Technology Index Fund ETF)
As I mentioned previously, before you start investing you should spend some time learning the different options available to investors. One option is to invest in stocks. Another is to invest in mutual funds and ETF (exchange traded funds). Just so you have a basic understanding of those 2 options, let me recap:
ETF – “An exchange traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies. ETFs are in many ways similar to mutual funds; however, they are listed on exchanges and ETF shares trade throughout the day just like ordinary stock.”
Mutual Funds – “A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.”
I prefer these because they include multiple stocks, not just a single stock. If you buy one stock and its share price tanks or the company ceases to exist then you have nothing. With mutual funds and ETFs there are multiple companies within the funds so if one starts to tank it can be replaced with a better performing one. You don’t lose that much value or shares.
With a single stock if the company decides to split its shares your stock price get diluted (price per share goes down). If the company does a reverse split you end up with less shares (not good if you’re looking for dividend income). With MF (mutual funds) & ETF (exchange traded funds) you never see this because these funds are managed for you. You do pay a small fee for this service but as long as the activity within the fund is low, so is the fee.
I do own a couple of individual stocks but the majority of my investment activities are with mutual funds and ETFs. I invest my 401K money with Vanguard 500 Index Fund Admiral Shares. My ETF investments are with Vanguard Real Estate ETF and Vanguard High Dividend Yield ETF. Yiu can pretty much surmise that I lean toward Vanguard funds. It’s pretty much a hands-off situation with those investments. I just invest more when I have the funds available and make sure I buy at the lowest price possible. That’s not saw that I don’t review the status of those funds but I don’t feel I have a need to be tinkering around with them.
I also have money invested in a mutual fund with my bank, FT Innovative Technology (FKUVBX). Again, I don’t concern myself as much with the share price as I am with the dividend payout. Especially with the mutual fund because the you need a minimum/increment of $1000 to add to the fund. This, to me, is the one drawback with mutual funds. At this time I can’t come up with $1000 to add to the fund. My investment fund is increased by $60-$200 at a time. Whenever I transfer any amount into the investment account, I like to have the money invested within a few days. I prefer to have my money working for me instead of just sitting and “collecting dust”.
So, to recap my basic strategy:
1. I want to add money into my investment funds in order to have funds available to increase my current holdings or to take advantage of a unique opportunity.
2. I want to invest in stocks that have a high dividend yield.
3. I prefer individual stocks to be priced below $20/share and ETFs to be priced below $100/share. The purpose here is to maximize the number of shares owned. I will trade off a higher price per share for higher dividend yield.
4. In the short term (within the next 5 years), reinvest the dividend back into the stock/fund. Grow the amount of shares owned.
5. View drops in price for shares as opportunities to increase number of shares owned because dividends are paid per share.
6. Keep a watchful eye on the declared dividend amount. If a company reduces the amount paid twice in a row, stock is a candidate for replacement. This only applies to individual stocks owned. Mutual funds and exchange traded funds are managed for you.