How to Invest $1000 in Dividend Stocks | 7 Stock Portfolio
Use this seven-stock portfolio to create cash flow from dividend stocks on investing just $1000
You know how much I love dividend stocks but the average stock in the S&P 500 pays just 1.3% a year. That’s only about $1 a month in dividends and not enough for a good cup of coffee!
So I’ve created a portfolio of seven dividend stocks that will produce a dividend yield more than six-times the market average. Better still, this dividend portfolio comes with the diversification and safety you need to collect that cash without worrying about a market crash.
In this video, I’ll show you how to use the core-satellite strategy in dividend investing, how to create a portfolio of funds and dividend stocks that combines safety and high-yield. I’ll then reveal how to invest $1000 in a dividend portfolio of seven stocks for a yield nearly six-times what you make on the overall market!
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Using the Core-Satellite Strategy in Your Dividend Portfolio
I’m going to start with the core-satellite strategy and Nation, I know this isn’t the sexy part of the video, the stock picks for those big dividend payouts but if you get just one thing from this video…the most important part, it’s this right here.
That’s because whether you use these seven dividend stocks to invest or not, using the core-satellite strategy is going to change your investing life. Not only is it going to help you create a stress-free portfolio with fewer ups and downs, but you can customize it to your goals for higher return and cash flow!
The core-satellite strategy involves investing part of your money in a group of maybe three- to five ETFs, exchange traded funds that hold stocks, bonds or other assets . For example, you might have as much as sixty- or seventy-percent of your money in a handful of funds. Here we have the Dividend Aristocrats ETF, the Vanguard Bond ETF, a real estate fund and a fund of growth stocks. Just these four funds are going to give you stable, market returns in different assets and investments.
Then with the remaining part of your portfolio, you invest in those individual stocks. Since you’ve only got maybe thirty- or forty-percent of your money left to invest, you have to be all the more picky, investing in only your very favorite stocks. You invest between three- and five-percent in each, benefiting from higher potential returns.
You’re not spending hours in front of CNBC or listening to some Yahoo in a Bow Tie talk about stocks because you’ve already got the eight or ten stocks you need. The ETFs in your portfolio give you that smooth return because the funds are diversified across hundreds or even thousands of stocks. In fact, a lot of times, it will be months before I even look at the ETF portion of my portfolio because I know the funds are tracking that slice of the market. But where some people are satisfied with that simple fund strategy, adding in the individual stocks is going to give you the opportunity to benefit from higher returns on the stock picks.
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3 Dividend ETFs for a Complete Dividend Portfolio on $1000
I want to get into our list and how to invest $1000 for dividends so I’ll show you why I picked these later along with how to create a portfolio customized to your needs!
Our first dividend fund is a monthly payer, the Global X Super Dividend ETF, ticker SDIV.
The fund holds 100 of the highest dividend paying stocks globally and produces a 6.8% annual yield, which is more than four-times the market average. It’s made those dividend payments every month for the last 10 years and I wanted to start with this one not only for that high monthly cash flow but also because it’s a global fund. Whereas the other funds we’ll see will be exclusively focused on the U.S. market, here you’re going to get access to dividend stocks from other countries as well, so just one more step to that diversification and lower portfolio risk.
The stocks in the fund sport a low 10.3 price-to-earnings ratio, a factor of so many being shares of cheaper international companies. It’s less than half the PE ratio on U.S. stocks so this is a good value play as well as for that dividend yield.
If we’re putting half of our $1000 into the core part of our portfolio, I’m going to overweight the investment into the SDIV a little because of the higher dividend and better diversification. So if we put $200 into the fund, that would mean about and splitting it up among the three funds, that would mean an annual dividend of $13.66 on that 6.8% yield.
Our next dividend ETF is another hybrid, the Global X SuperIncome Preferred ETF, ticker SPFF, investing in preferred shares with the highest dividend yields.
Now a preferred share is somewhere between stocks and bonds. It’s not a debt obligation like a bond but includes a fixed dividend payment that’s higher than most stocks. Preferreds get their dividend paid out before stockholders so it’s a little less risky and most convert to a regular stock at a certain price.
So preferred shares don’t have quite the upside return as stocks but offer higher yields and the safety of bonds. Why I like this one is partly on that safety but also you do get a higher return than a bond portfolio. Right now, with interest rates moving higher for the next couple of years, bond portfolios could actually lose money but you still need some kind of safety in case stocks fall apart and this fund is a great mix for both.
The Global X Fund invests in the 50 highest-paying preferred shares and produces a 5.6% dividend yield against an expense ratio of just 0.6% which is really good for one of these specialized ETFs.
The fund skews a little towards financials and bank stocks because those happen to be the ones that pay the highest yield on preferred shares. You’ve got a lot of big bank names in here like Wells Fargo and JP Morgan along with some smaller names like Ally Financial.
Adding the SPFF to our portfolio with $175 of the $1000 total for a dividend of $9.84 bringing our total so far to $23.50 after just two funds.
The last fund in the core part of our $1000 portfolio is the Invesco S&P 500 High Dividend, Low Volatility ETF, ticker SPHD is a favorite among investors and pays a 3.7% yield.
This is a great dividend stock ETF because it combines the search for those high yields with a lower risk profile in those with lower volatility. The fund invests in 50 stocks of U.S. companies with high dividend yields that have also historically been safer than others. It’s a little more concentrated in a few sectors including real estate, utilities, financials and staples but those just tend to be less volatile than the economically sensitive ones.
And that strategy has worked in the market selloff of this year. Since January, the SPHD fund has produced a 0.9% return against the 8.8% loss on the broader S&P 500 market index…so living up to that low volatility strategy.
Adding our final ETF to the core part of the portfolio with the remaining $125 brings our dividend total to $28.14 and remember, that’s just on half of the portfolio and an average yield of 5.6% which is more than four-times the average yield on the stock market. We’ve still got another $500 to invest in our individual dividend stocks.
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4 Dividend Stocks for Your $1000 Portfolio
Now that we have the core part of our $1000 portfolio, that diversified mix of dividend funds, we want to boost the yield with some individual stocks. And since those funds are lower risk and half the portfolio, we can take a little more risk in these stocks while keeping the overall portfolio risk low.
And this is something you can adjust to customize your own portfolio to fit your needs. If you want a little higher dividend yield and can take the risk, maybe you lower the amount you invest in the funds and increase what you invest in the stocks. Conversely, if you want a little more safety then you’d take more of that $1000 and put it in the funds .
For a lot of investors, the breakdown here is going to change as you get older and get closer to needing your money in retirement. You might start with just thirty-five or forty-percent of your portfolio in funds and the rest in stocks in your 20s and 30s but then by your 50s, you’ve adjusted to sixty- or even seventy-percent of your money in broad, diversified funds that aren’t bouncing around like individual stocks.
AGNC Investment Corporation, ticker AGNC, is our mortgage REIT pick with an 11.1% dividend yield and a good bet in the mREIT theme.
AGNC holds a $103 billion investment portfolio with $99 billion of that in Agency mortgage backed securities. Book value has been ugly for all the mortgage REITs because of the interest rate picture and it’s fallen to $17.52 for AGNC. That means the shares are trading well under their book value which is a pretty good place in terms of value.
One bright spot is that the net interest spread, that’s the difference between the interest rates on investments minus those short-term rates on which the company borrows, that spread jumped in the third quarter so could be signaling better profitability ahead.
One thing I do want you to watch out for if you’re creating a dividend portfolio is the concentration of business types in your portfolio. You see, most of your highest dividend yield stocks are going to be in three types of businesses; mortgage REITs like AGNC, business development corporations or BDCs and master limited partnerships or MLPs which mostly own oil and gas pipelines.
Now these can be some great stocks and the dividends are undeniably awesome…but too often what happens is investors look at those high yields, they get dollar signs in their eyes, and they load a portfolio up only with stocks of these three types of businesses.
The problem is, all three business types are highly volatile and dependent on interest rates, so if rates fall or if the yield curve inverts, then you can see a pretty sharp selloff. If your entire portfolio is weighted heavily in just mREITs, MLPs and BDCs…it can crash your portfolio and make for a very scared investor.
So, moral of the story, don’t avoid these high yield dividend stocks but also make sure you have a good mix of dividend funds and stocks of companies in other business types as well so you spread your risk around.
Adding AGNC to our dividend portfolio and I’ll be splitting the remaining $500 up equally in these four stocks. So that means $125 in AGNC and its 11.1% dividend yield, adding $13.88 to the payout and $42 total so far.
Another favorite dividend stock among investors and a strong yield of 8.9% is Prospect Capital, ticker PSEC.
Prospect is a business development corporation, a BDC founded in 2004 with over 16 years of dividends and performance. The company manages a $5.7 billion portfolio of 122 investments in companies across 39 industries and earns a 9.9% yield on its portfolio. That’s more than enough to cover the stock’s dividend yield and has helped it produce a 13.3% annual return over the last five years.
BDCs make loans to small- and mid-size companies, those too big for your regional banks but still too small to get money from the capital markets. And that portfolio yield is the most important thing you want to watch for here. You’ll find this in any BDC’s financial statements called the Weighted Average Portfolio Yield, and it’s the average interest rate the company makes on its loans. You want to make sure that’s above the dividend yield. A portfolio yield above the dividend is not only a sign the company can keep paying that dividend but it’s also making enough that you’ll see the stock price grow as well.
Prospect’s portfolio yield is more than two percent above the stock’s 9% dividend yield so some room there to increase the dividend and reinvest in the business.
In fact, Prospect has returned a cumulative $18.60 per share in dividends for more than $3.3 billion since the 2004 IPO and that payout keeps climbing. That’s the purpose of these BDCs is to act as a bank and investor to mid-size companies, manage those assets and then return 90% of earnings as cash flow to you the investor.
Adding Prospect Capital with $125 of that $1000 portfolio adds another $11.15 to the cash payment on its 8.9% dividend bringing our total to to the payout and $42 total so far to $53.17 annually.
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Adding some real estate to our $1000 portfolio with Global Net Lease, ticker GNL, and its 10.8% dividend yield.
GNL is unique among real estate investment trusts in that it has a diversified international portfolio. Most REITs are almost exclusively U.S.-focused but here you have 309 properties, more than 39 million square feet across the US, Canada and Europe.
Properties have a 99% occupancy which is extremely high and are spread among 138 tenants in 51 industries so you’ve got that diversification not only geographically but risk is spread out so that a crisis in any one industry isn’t going to hit the stock. I also like that 54% of the portfolio is in the industrial and distribution segment, a huge growth market for real estate, and I believe office property is going to surprise higher as we move past the pandemic so that 42% weight could further support the shares.
The average analyst price target for Global Net Lease is at $18 a share so you’ve got the potential for a 22% upside on top of that dividend yield and this is one of my favorites for long-term cash flow.
We’re starting to see the dividends add up and putting $125 in Global Net Lease adds another $13.46 in dividends for a total payout of $66.63 and that doesn’t include any price returns we book each year.
Banks and financials are one of my favorite sectors for the rise in rates and I’m buying shares of New York Community Bancorp, ticker NYCB, for its 6.1% dividend.
The bank is a leading producer of multi-family loans in New York with 50 years in the market and is aggressively expanding nationally with its Flagstar Bank acquisition announced last year. It now has nearly 400 branches and $87 billion in assets across eight states.
I’m watching bank stocks closely this year because as interest rates climb higher, this could be one of the only industries to actually benefit. Higher rates mean banks make more money on their loans and NYCB already books excess capital generation of $500 million a year AFTER paying the dividend. Higher profits could mean a higher yield and a higher stock price.
Adding NYCB to the list adds another $7.66 in dividends and while it’s the lowest yield of the four stocks, I really like the upside price potential on this one. It also brings our total dividend payout to $74.29 which is a 7.4% yield on our $1000 portfolio…that’s nearly six-times the dividend you’d get on the overall stock market. You’ve got strong diversification and stability, a high yield and the upside return potential on some great stocks!
Just these seven dividend stocks and funds will give you not only a dividend yield of more than six-times the stock market average but also the diversification and safety from a complete dividend portfolio. Add some growth stocks or other ETFs for return and you’re all set with a portfolio that covers everything you need!
Check out All the Posts in our Dividend Investing Series:
My Dividend Income Portfolio for DAILY Cash Flow!5 Safest Monthly Dividend Stocks that Will Never Let You Down!Top 7 Monthly Dividend Stocks with High Returns