Tag Archives: NYSE:UNP

How to Create a Passive Income Portfolio

To create a passive income portfolio, you can invest in bonds or stocks that generate interest or dividend income without you having to lift a finger. I prefer to invest in stocks which have outperformed bonds in the long run.

I also like the concept of investing in stocks because I’m owning stakes in businesses and benefiting from their profits (although I also take on their risks). This is markedly different from purchasing bonds for which you’re lending your money to governments or corporations for interests in return.

In fact, dividend investing is my favorite way to generate passive income. There are so many safe dividend stocks to choose from. Even in a booming stock market like today, you can still find quality businesses at good valuations.

Here’s how to create a passive dividend income portfolio:

  • Buy stocks that offer safe dividends at good valuations
  • Diversify but don’t di-worsify
  • Aim for a low-maintenance portfolio that’s replicable, scalable, and can be largely automated
grow a money tree

Buy stocks that offer safe dividends

The U.S. and Canadian stock markets offer yields of 1.8% and 2.8%, respectively. There are plenty of safe dividend stocks that offer higher yields of about 3-6%.

However, typically, the higher the yield of a stock, the slower its dividend growth will be. (Sometimes, high yielders don’t increase their dividends.) Similarly, low yield stocks tend to increase their dividends faster. Typically, dividend growth stocks are safer and better than stocks that simply maintain their dividends.

Buy stocks at good valuations to protect your invested capital and maximize your gains.

Here are a few examples.

A high yield example

NorthWest Healthcare Properties REIT (TSX:NWH.UN) owns a high quality portfolio of medical office buildings and hospital properties in major markets in Canada, Brazil, Germany, The Netherlands, Australia, and New Zealand.

The healthcare REIT generates stable cash flows from having a high occupancy of about 96% and a weighted average lease expiry of 13 years. Additionally, it gets organic growth from having more than 70% of its net operating income indexed to inflation. It also has CAD$370 million projects in its development pipeline that’ll also add to growth.

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Should You Buy These Industrial Dividend Stocks?

Some Industrial dividend stocks have dipped 25-30% from their 52-week highs. I believe they give a sense that the sector isn’t doing well, but is there value to be found? The dividend stocks covered are Union Pacific Corporation (NYSE:UNP), W W Grainger Inc (NYSE:GWW), and one more.

Three companies is a small subset to draw a conclusion from, but I believe they can be telling. To look at a more representative group, check out the Industrial Select Sector SPDR® Fund (NYSEARCA:XLI) that consists of 66 Industrials.

The Industrial Dividend Stocks

Union Pacific train

These Industrial dividend stocks have tumbled in the double-digits in the past year. They have solid balance sheets with S&P credit ratings of A or better.

  • At $49, Emerson Electric Co. (NYSE:EMR) has retreated 25% from its 52-week high of $65.
  • Around $85, Union Pacific is 31% below its 52-week high of $124.
  • At $193, W W Grainger Inc is down 26% from its 52-week high of $261.
Ticker Industry 1Yield 2S&P Credit Rating 3DG Streak (Years) 2Debt/Cap
EMR Diversified Industrials 3.9% A 58 28%
UNP Railroads 2.6% A 9 37%
GWW Industrial Distribution 2.4% AA- 44 34%

Data from close of November 17, 2015.

  1. Estimations from Google Finance
  2. From F.A.S.T. Graphs
  3. From CCC List found here

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5 US Stocks for High Dividend Growth

Summary

  • Some investors maybe worried about interest rate hikes.
  • Lower-yielding companies with estimated high earnings growth will likely be less affected by interest rate hikes compared to high-yielders.
  • These 5 companies could help complement the blue chip dividend payers in a dividend growth portfolio.

With the interest rate hike matter looming, investors might opt to look for investments which pay a lower yield, but have higher expected earnings growth rates.

If you’re looking for total return in investments and are not concerned about the immediate dividend income, here are 5 businesses for consideration. They are all expected to grow earnings at a rate of 10% or higher per year in the near future.

I placed them from lowest expected earnings growth to highest, assuming it’s easier to achieve lower growth than higher. So the companies appearing first are more likely to achieve their expected earnings growth. Additionally, they’re all expected to grow dividends at least 10% per year in the foreseeable future.

  1. Enbridge Inc (TSX:ENB)(NYSE:ENB) with 3% yield and 10-12% expected earnings growth.
  2. Gilead Sciences, Inc. (NASDAQ:GILD) with 1.5% yield and 11% estimated earnings growth.
  3. Union Pacific Corporation (NYSE:UNP) with 2.1% yield and 11% estimated earnings growth.
  4. Johnson Controls Inc (NYSE:JCI) with 2% yield and 12% expected earnings growth.
  5. Cummins Inc. (NYSE:CMI) with 2.2% yield and 15% estimated earnings growth.

To learn more about each of these companies, check out the Seeking Alpha article at 5 Dividend Companies With 10-15% Growth.

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