Valuentum Exclusive Analysis for the Discerning Investor

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Image Source: Mike Cohen

By Brian Nelson, CFA 

With the federal funds rate standing at 5%-5.25%, the hurdle rate for yield in the Dividend Growth Newsletter portfolio and High Yield Dividend Newsletter portfolio is much higher these days. We’re not at all worried about a recession as that was largely priced in during 2022, and we’re looking ahead to strong nominal GDP and huge opportunities within artificial intelligence [AI]. 

Though we may add a dividend grower that is yielding below the 5% yield threshold to the Dividend Growth Newsletter portfolio with expectations for breakneck dividend-per-share expansion in the future, these days we’re looking for a couple incremental ideas that have yields already much higher than the 5% mark to add to the Dividend Growth Newsletter portfolio and the High Yield Dividend Newsletter portfolio. 

Let’s first start with additions to the Dividend Growth Newsletter portfolio. At new 8%-12% “weightings,” respectively, we’re adding the JPMorgan Equity Premium Income ETF (JEPI) and the Global X SuperDividend U.S. ETF (DIV). The JEPI has a 12-month rolling dividend yield of 11.04%, and we like its derivative income strategy, which employs writing out-of-the-money S&P 500 call options to bolster income. The JEPI includes many of our favorite tech-related, AI-driven names, too, including Microsoft (MSFT) and Alphabet (GOOGL). 

The DIV doesn’t pursue a derivative income strategy, but instead includes “50 of the highest dividend paying equities in the United States,” and “has made monthly distributions 10 years running.” The DIV’s 12-month trailing dividend yield stands at 7.89%. Both of these ETFs will make solid additions to the Dividend Growth Newsletter portfolio, which will receive a very nice boost in forward estimated portfolio yield, especially thanks to the JEPI’s inclusion. 

In addition to these two new “adds” to the Dividend Growth Newsletter portfolio, we’re also increasing the “weighting” in McDonald’s (MCD), Home Depot (HD), Honeywell (HON), UnitedHealth Group (UNH), and Dick’s Sporting Goods (DKS) in the Dividend Growth Newsletter portfolio to the range of 3%-4% from 1%-2% previously. Altogether, these changes should take the Dividend Growth Newsletter portfolio to “fully invested,” with the midpoint of all the constituent weighting ranges summing up to ~95%-100%. 

The new additions to the High Yield Dividend Newsletter portfolio will take it to “fully invested,” too. In the High Yield Dividend Newsletter portfolio, we’re making similar moves and “adding” 10% weightings in the JPMorgan Equity Premium Income ETF (JEPI) and the Global X SuperDividend U.S. ETF (DIV) to the High Yield Dividend Newsletter portfolio. We’re also upping the weighting in the iShares International Select Dividend ETF (IDV) to 7.5% from 5%. This will bring the cash “position” in the High Yield Dividend Newsletter portfolio to ~0%, and we’re okay with that. 

The additions to both the Dividend Growth Newsletter portfolio and High Yield Dividend Newsletter portfolio will bolster each newsletter portfolio’s estimated forward dividend yield, something that we view as necessary for these respective strategies in a world where the federal funds rate stands north of 5%. These changes will be reflected in the respective newsletter portfolios on July 1 at the time of the release of their respective July editions. We’re not concerned by the risks of a recession at all, and we remain bullish on equities.

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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson's household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies. 

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