Overview
This blog post is aimed at showing you how to build a dividend stock portfolio for passive income. Ideally, we’d like to find companies that have demonstrated sustained profitability across multiple fiscal years. Even so, both revenues and dividends have increased consistently over time.
Should You Invest in Dividend Stocks for Passive Income?
If you’re looking to boost your portfolio’s returns and supplement your passive income, dividend stocks are a terrific option. To avoid making a costly mistake, investors should look into more than just dividend yields when considering a company for investment. The Bill and Melinda Gates Foundation Trust has a notable portfolio that is rich in dividend stocks.
Dividend Stocks Held by the Bill & Melinda Gates Foundation
Waste Management (WM)
Waste Management (WM) is one of the dividend stocks held by the Bill & Melinda Gates Foundation. The stock’s dividend yield is 1.82%. P/E (TTM, trailing 12-month) is now at 28.58. Its PEG ratio is 3.27. As PEG rises above 1, the stock becomes less attractive to prospective investors looking for bargain. When dividends are factored in, the PEGY ratio is 2.71. Despite being lower than the PEG, the value is still greater than 1. Nonetheless, the stock provides the Foundation with a consistent stream of dividend income and share price appreciation over time.
Walmart (WMT)
Another dividend stock on the books is Walmart (WMT). The current dividend yield of the stock is 1.56%. The trailing 12-month price-to-earnings ratio is currently at 44.36. It has a PEG ratio of 10.21. Any PEG ratio above 1 makes a stock less appealing to value investors. The dividend-adjusted PEGY ratio is 7.51. When compared with Waste Management, Waste Management’s stock is more appealing to investors due to its lower PEGY ratio. Despite this, Walmart has consistently proven to be a sound investment. It pays out a dividend, and its share price rises over time.
How Do You Find Dividend Stocks for Passive Income on Your Own?
Using the PEGY ratio, you can find dividend-paying stocks that will give you a steady stream of passive income. The PEGY ratio is not without its limitations. The growth rate is based on the company’s forecasts rather than actual growth. Therefore, there is no assurance that the ratio is a reliable indicator of future results.
Since this is the case, it is prudent to be conservative when estimating a business’s potential for future earnings growth. To check if the projected rate of growth is sustainable, we compared it to the average rate of growth during the preceding five years. After verifying that everything adds up properly, we may settle on the dividend yields we desire. The savings rate is roughly 3%, given the current state of the market. Therefore, we will be hunting for dividend stocks that pay out at least 3% every year.
To proceed with the scenario, we want to find equities with a PEGY ratio below 1 and a dividend yield of at least 3% every year. Fortunately, there is no shortage of online resources that provide stock screeners, which facilitate this type of research. With a PEGY ratio of less than 1 and a dividend yield of at least 3% in mind, we arrived at the following list of 37 dividend-paying stocks:
| Symbol | Company Name | Security Type | Security Price | Dividend Yield | P/E (TTM) | PEGY Ratio |
|---|---|---|---|---|---|---|
| TD | Toronto-Dominion Bank (The) | Common Stock | 69.69 | 4.06 | 7.4 | 0.58 |
| UNM | Unum Group | Common Stock | 42.46 | 3.11 | 6.5 | 0.53 |
| BGSF | BGSF Inc | Common Stock | 15.49 | 3.87 | 11.6 | 0.48 |
| E | Eni SpA | Depository Receipt | 31.71 | 5.71 | 3.3 | 0.09 |
| COP | Conocophillips | Common Stock | 115.06 | 4.64 | 7.9 | 0.56 |
| CNQ | Canadian Natural Resources Ltd | Common Stock | 60.61 | 4.11 | 5.9 | 0.33 |
| XOM | Exxon Mobil Corp | Common Stock | 119.17 | 3.05 | 9 | 0.30 |
| MPW | Medical Properties Trust Inc | Common Stock (REIT) | 12.09 | 9.59 | 5.8 | 0.35 |
| SU | Suncor Energy Inc. | Common Stock | 34.27 | 4.52 | 6.1 | 0.17 |
| SHG | Shinhan Financial Group Co Ltd | Depository Receipt | 32.6 | 6.91 | 5.3 | 0.37 |
| KB | KB Financial Group Inc | Depository Receipt | 44.13 | 6.60 | 5.3 | 0.43 |
| SQM | Sociedad Quimica y Minera de Chile SA Soqimich | Depository Receipt | 93.04 | 8.08 | 8.6 | 0.38 |
| NFG | National Fuel Gas Co | Common Stock | 58.58 | 3.24 | 9 | 0.68 |
| PXD | Pioneer Natural Resources Co | Common Stock | 231.39 | 11.26 | 8.2 | 0.23 |
| DVN | Devon Energy Corp | Common Stock | 63.54 | 8.14 | 6.7 | 0.18 |
| WES | Western Midstream Partners LP | Unit Trust Fund | 28.26 | 7.08 | 10.4 | 0.45 |
| UGP | Ultrapar Participacoes SA | Depository Receipt | 2.5 | 6.11 | 15.6 | 0.51 |
| BMO | Bank of Montreal | Common Stock | 101.43 | 4.24 | 5.1 | 0.49 |
| PSX | Phillips 66 | Common Stock | 107.38 | 3.91 | 4.6 | 0.14 |
| TROX | Tronox Holdings plc | Common Stock | 16.25 | 3.08 | 4.3 | 0.46 |
| NEP | NextEra Energy Partners LP | Unit Trust Fund | 72.35 | 4.49 | 12.9 | 0.40 |
| CTRA | Coterra Energy Inc | Common Stock | 25.07 | 9.93 | 5.1 | 0.24 |
| TNL | Travel Plus Leisure Co | Common Stock | 41.46 | 3.86 | 9.5 | 0.61 |
| JWN | Nordstrom Inc. | Common Stock | 21.65 | 3.51 | 10.8 | 0.54 |
| NFE | New Fortress Energy Inc | Common Stock | 40.01 | 15.00 | 29.9 | 0.16 |
| BAP | Credicorp Ltd | Common Stock | 127.1 | 3.32 | 8.6 | 0.47 |
| BNPQY | BNP Paribas | Depository Receipt | 34.12 | 8.43 | 9.9 | 0.47 |
| DBSDY | DBS Group Holdings Ltd | Depository Receipt | 108.2085 | 3.86 | 13.8 | 0.71 |
| KNBWY | Kirin Holdings Co Ltd | Depository Receipt | 15.57 | 3.18 | 18.3 | 0.49 |
| NHYDY | Norsk Hydro ASA | Depository Receipt | 7.94 | 8.64 | 5.4 | 0.16 |
| NHYKF | Norsk Hydro ASA | Common Stock | 8.0725 | 8.70 | 5.4 | 0.16 |
| SCGLY | Societe Generale Group | Depository Receipt | 5.64 | 6.27 | 15.2 | 0.54 |
| PBA | Pembina Pipeline Corp | Common Stock | 34.92 | 5.52 | 7.3 | 0.39 |
| YY | JOYY Inc | Depository Receipt | 34.85 | 5.85 | 5 | 0.16 |
| WF | Woori Financial Group Inc | Depository Receipt | 30.06 | 8.53 | 3.5 | 0.19 |
| MNSO | MINISO Group Holding Ltd | Depository Receipt | 15.76 | 11.88 | 36.7 | 0.71 |
| TPG | TPG Inc | Common Stock | 32.38 | 3.21 | 8 | 0.57 |
It is up to you to do the research necessary to pick which stocks to include in your dividend stock portfolio.
Example: Toronto-Dominion Bank (TD) for Passive Income
In terms of dividend stocks for a passive income portfolio, Toronto-Dominion Bank (TD) is a strong contender. It has a cheap P/E and a PEGY ratio of 0.58 in addition to a high dividend yield (over 4% annually). The combination of these factors makes the stock a valuable investment. It’s possible that shareholders will benefit from both the annual dividend and the long-term appreciation of their investment. Before making any investment, it is important to do your own research. This is merely a test run of the analysis done to find stocks that satisfy the specified criteria.