The FTSE 100 Dividend Kings Aristocrats Portfolio

I used to subscribe to, what was at the time, probably the leading UK High Yield dividend investment tips letter run by a highly qualified chartered accountant/FA who ran the tips letter for about 10 years starting in 2008 and I believe disbanded about 2018/19. I subscribed for a year or two but had all of the recommendations going back to the start in 2008. The strategy focussed exclusively on High Yield dividend income, giving up on the whole idea of trading for gains/growth, and instead, targeting the proven method of growing a nest egg via compounding dividend reinvestment.

A diversified Income Portfolio and then… doing nothing!

Once a month the Letter would recommend a new FTSE 100 High Yield stock that met strict criteria and would diversify a portfolio of between 15 to 20 shares in different market sectors. The tip letter would then start the next round of FTSE 100 High Yield portfolio construction applying the same criteria each month, but once you had built your diversified portfolio you were done.

The advice from this experienced accountant and professional investor was then to hold these shares forever, not ‘tinkering’ with the portfolio by buying and selling based on market conditions. This is a nice setup because once in place you don’t have to do anything else. Just do… nothing! Enjoy the income, reinvest as much as possible or withdrawing it according to need.

For investors prepared to take the risks of equity income investing, HYPs suit both those building a portfolio for future income and those seeking immediate income, with seamless switching between the two. It’s straightforward, enabling seamless and cost-free switching from reinvesting dividends to withdrawing them whenever needs dictate.

If you’re keen this article (new tab) explains the background and investment philosophy.

Those who committed to this strategy reported good long term results…

I actually only followed the dividend tips in the letter loosely at the time. I wish I had been a more disciplined investor as I would have achieved some good results in the earlier part of my investing career. TAKE NOT YOUNGER INVESTORS (and by younger, I am including those of you in your 30’s and even 40’s!)

I recently checked some investment forums and there were plenty of respondents going way back to the first High Yield portfolio that were more than happy and some claiming it helped them to retire much earlier than otherwise would have been the case.

So, what are the stock selection criteria?

The purpose of this article is simply to identify the usual suspects the portfolios were recommending time and again and also to assert that these are therefore probably safe bets when it comes to this type of high yield portfolio.

But, for some background information, the High Yield Portfolio criteria were based on an earlier high yield ‘value’ selection criteria comprising four filters:-

* Low Price/Earnings ratio (Does the stock represent good value)

* High Yield (Is the stock paying above-average dividend yield)

* Assets in the form of Tangible Book/Price > 1

* Debt-free, ie. holding net cash.

This was then branched out into the non-trading High Yield Portfolio approach for income investors and is what the originator of the strategy follows to this day for his own substantial equity investments.

FTSE 100 = Risk Reduction

Yes, it’s possible that some of the stock price levels could go down, but you are not concerned, you are getting paid. It’s a worry-free investment philosophy. And, you have to remember, many of these FTSE 100 companies have revenues bigger than many countries GDP. They’re not going anywhere!

Take BP for example. The Deepwater Horizon oil spill in the Gulf of Mexico was the largest marine oil spill in history. BP were then pursued by multiple agencies including the then president of the USA, Barack Obama and sued. Yet here they are in 2020, still in the FTSE 100 and still paying out good dividends.

Looking back over the previous recommendations in the HYP letter, it became apparent the same usual suspects were being recommended, but with some variations in each of the dividend portfolios, and there was no apology made for this either. If a particular stock met the criteria for a particular month then it was in because it was the best recommendation for that month and being recommended in a previous dividend portfolio was neither here nor there.

However, if the same or similar FTSE 100 companies were being recommended over a number of years each month, passing the most stringent criteria for a dividend portfolio, it was probably because they are the best FTSE 100 dividend stocks to invest in…

The highlighted 26 FTSE 100 stocks above were either the most selected in their respective market sectors in the 8 YEAR portfolios selection period.

Due Diligence… Check the Divs before buying!

It is possible for dividends to be cut. The coronavirus was the most extreme example of this in action. The free site links below allow you to check dividend levels, ex-dividend date, current status etc

• CLICK HERE (opens new tab) to check the dividend yield for FTSE100 stocks

• CLICK HERE (opens new tab) lists dividend cuts for the entire UK market.

• CLICK HERE (opens new tab) to see a dividend monitoring report for the UK. (On the main menu, click on ‘Insights’ and you will see the latest Dividend Monitor report for the UK

• CLICK HERE (opens new tab) to see the AJBell dividend monitoring report for the UK.

Two great resources to get a current ‘buy’ or ‘sell’ view on the stock from established brokers The Share Centre and Hargreaves Lansdown

• CLICK HERE (opens new tab) to get the current ‘Share Centre’ recommended FTSE 100 stocks

• CLICK HERE (opens new tab) to get the current ‘Share Centre’ BUY/SELL view for all FTSE 100 stocks

• CLICK HERE (opens new tab) to get the current share tips from Hargreaves Lansdown

It might be tempting to just go with what the Share Centre says in terms of their BUY/SELL recommendations, but the stocks in the Dividend King portfolio were selected by a specialist dividend stock picker for many years and came out as the winners in their sector time and again.

The Share Centre recommendations may well be taking a shorter-term view. I use the Share Centre links as a kind of ‘sanity check’ against the longer-term recommendations from the Dividend King portfolio. The dividend kings are more likely to survive and keep paying decent dividends over the longer-term economic cycles of boom and bust.

Who do I listen to? In short, yourself. As an investor, you are going to come up against conflicting views from the ‘experts’. The point here is to develop your own confidence to invest after making the checks and balances against the views and data available to you.

Before selecting the 10 – 15 FTSE stocks from the list below I would also check out the recommendations on one of the most well know financial data and information sources for their view on the companies:-

Morning Star updates a selection of high yielding FTSE stocks on a monthly basis, screened for certain criteria (probably similar to the Dividend Kings selected in this article) :-

CLICK HERE.

This is effectively a Done For You FTSE 100 dividend portfolio whereby I could just say take the top 5 each quarter/half year/annually and reinvest/rebalance accordingly. (Out of interest, I think I will backtest that portfolio and then compare the returns to a FTSE100 Dividend ETF. )

And, from AJBell we have a free quarterly dividend guide/report that also contains the ‘dividend aristocrats’ portfolio: –

CLICK HERE.

Buy & Hold Forever?

As mentioned above we are meant to Buy & Hold forever. Certainly, this is what many have done before and it has worked well for them. but that doesn’t mean that you don’t monitor your portfolio. For a start, Carillion no longer exists after folding due to debt and probably mismanagement along with a number of other factors. It was officially, “the largest ever trading liquidation in the UK” – which began in January 2018.

This may well have been a one-off for a FTSE 100 company, and I believe it is the only Company in the 8 years of portfolio recommendations that folded, but it illustrates the need to, at least once per year, perform a ‘sanity checking’ exercise over the portfolio, or even run through some selection criteria on each share such as debt levels, revenue and earnings/profit, market sector outlook and make a call to switch into another FTSE 100 share within the sector, or even out of a sector all together. If I do this once per year, it’s still not much work I need to do.

The FTSE 100 Dividend King Usual Suspects Portfolio

Being selected just once doesn’t qualify it as a ‘Usual Suspect’! Remove these stocks and we are left with Usual Dividend King Suspects…

Personally, I would not invest in Travel/Holiday company ‘Tui’ right now as their near term prospects are too risky due to the Coronavirus hit on the economy, but in particular on the Travel sector.

Footnote…

The same originator of this portfolio constructed his High Yield portfolio, ending in APR 2020 using the same FTSE 100 dividend stock selection criteria, and posted it on a public forum recently. Guess what… the usual dividend king suspects are still going strong… 

* The first year income of £5,071 shown represents a return of 5.966% on the start capital of £85,000.

* The very recent C19 scare has hit the capital value hard and also resulted in widespread dividend suspensions which will almost certainly cause the income for the second year to take a substantial hit too.

* HYPs are a very long term income strategy and it is inevitable that setbacks will occur at times. The likely year two income hit just happens to occur early in the life of this portfolio, though not before delivering a very decent first year. 

And Lastly… Dividends on Steroids?

This one is a bit random, but this is a pretty decent source and reporting on an ‘elite’ dividend investing strategy aimed at returning 12% a year. Once again, looks like a lot of effort, but also looks like it has potential… Click Here.

And you? Do you invest in dividend shares or funds?