I have been a growth stock investor for the past 20+ years and am looking to start a dividend portfolio. I would like a 3-4% annual yield if possible. What is the best way to get started? Should I pick a few stocks from each category below?
Is your portfolio for income?
Let PFF diversify for you, it pays monthly, present yield is 6% or so, and you can sell covered calls against the shares. I see your list does not include a Real Estate Investment Trust (REIT). I have shares in LMT, it pays dividend monthly, and I sell covered call options against my shares, $35 strike price. I have done this with LMT for quite a few years. You can research it online. Present yield is about 6%, and well over 10% if you sell covered call options against it.
OOPS, never mind my comment, I see you do have a few REITs listed, but under Utilities, not sure I would put them there.
We hold PEP, KMB, O, ABBV, CAT and SWK from your list.
O is our largest position and it is a good time to buy. It is our largest position so I only add 1 or 2 shares occasionally.
CAT and ABBV have advanced a lot, quickly. I took a tiny slice off both. I would buy a small position and add on any pull-back.
CAT was in my Dividend Core for a long time but I moved it to Other Dividend since the price advance lowered the yield to 1.09%.
KMB, PEP and SWK are down (as is PG). I have been adding to all 4 positions.
For petroleum, we own OKE and CTRA. OKE is down and I have added to it. CTRA has come up $3.00 since I last added. (I heavily trimmed CTRA at 29.37 in January)
For a little extra boost, I have NLY, a mortgage REIT, at 2% of our portfolio. It near the top of its range. I would buy a small position and add when it goes lower.
I have also been adding to HYGV and SCHI
Portfolio Yield as of 11/14/25 13:41:41:
Dividend Core 4.74%
Other Dividend 1.10%
Bond ETFs 6.47%
Stock ETFs 0.00%
Combined Yld 3.72%
Portfolio Yld 2.48%
I’ve been doing dividend investing for 20+ years. A few tips: start with lists such as “dividend aristocrats” and “dividend contenders”. Link here Dividend Radar
Then narrow your search to companies that are growing their earnings per share faster than their dividends over a 5 year period.
Then research the companies to see if you understand them. I’ve read up on some that have good/impressive numbers, but I can’t get my head around how the corporate structure is set up. They are a subsidiary of a subsidiary that has varying claims to their earnings. ( an exaggeration to make a point). I don’t invest in anything that I can’t explain to make a 5th grader understand.
These lists aren’t guarantees but are good places to start.
It’s possible, but there’s rarely a “free lunch” when it comes to investing. As a general rule (though exceptions can be found), the higher the current yield, the lower the potential dividend growth rate.
Factors I like to look at include:
Payout ratio
Anticipated growth rate
Valuation
Historical dividend growth rate
Debt-to-equity ratio
Cash from operations and free cash flow vs. net earnings
I also keep an eye towards diversification. I won’t pick a stock simply to drive diversification, but in a world where I’m picking between a couple of equally reasonable candidates, I’d rather pick one in an industry I’m not overly invested in vs. one I’m already heavily invested in.
The lists of companies with histories of dividend growth are decent starting points, but it’s important to remember that past performance is not a guarantee of future results.
Another key thing to remember is that a dividend is never a guaranteed payment. If a company gets into trouble, its dividend can get cut — and very likely will get cut if things get bad enough.
All that said, I remain a fan of dividend growth investing. In fact, I hit a milestone this week where my dividend income for 2025 to date surpassed my dividend income for all of 2024. That was a pleasant surprise, as due to acquisitions and selling stocks that I had acquired via options assignments, I “lost” a few of my higher yielding investments vs. 2024.
Time will tell whether 2026 will see a continuation of net increases vs. 2025. Given trade policy and economic concerns, I am not anticipating rapid dividend growth in 2026.
Chuck, Thanks for the useful things to consider. I used your template to start researching Pepsi.
Payout Ratio
PepsiCo’s trailing twelve months (TTM) GAAP payout ratio is approximately 105.6%. This indicates the company is currently paying out more in dividends than it earns in GAAP net income.
However, a more relevant figure for a mature, cash-generating business is the cash dividend payout ratio or free cash flow payout ratio.
The free cash flow payout ratio is around 111.3%.
The non-GAAP EPS forward payout ratio is a more sustainable 70.76%. The recent high GAAP payout is likely influenced by non-cash charges or temporary fluctuations in earnings.
Anticipated Growth Rate
PepsiCo is expected to maintain steady growth:
Long-Term EPS Growth: Analysts forecast long-term (three to five years) earnings growth of around 13.2% annually.
Revenue Growth: Annual revenue is projected to grow by approximately 3.4% per year.
Near-Term Outlook: While 2025 EPS estimates show a slight decline, 2026 is expected to resume growth of nearly 6%.
Valuation
Trailing P/E Ratio: The current TTM P/E is about 28.28. This is slightly above its 10-year historical average of 25.55.
Forward P/E Ratio: The forward P/E ratio is approximately 17.36, which is below the industry average and suggests expected earnings growth will make the current price more reasonable in the future.
PEG Ratio (5-year expected): The PEG ratio is high at approximately 5.51, suggesting the stock may be richly valued relative to its expected long-term growth rate.
Historical Dividend Growth Rate
PepsiCo is a “Dividend King”, having increased its dividend for over 50 consecutive years.
5-Year Average Growth Rate: Approximately 7.0% annually.
10-Year Average Growth Rate: Approximately 7.6% annually.
Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio is approximately 2.62 (or 262%). This signifies a high reliance on debt financing. While this ratio has remained elevated, PepsiCo’s strong, stable business model and robust interest coverage ratio (13.67x) allow it to service its debt effectively.
Cash from Operations and Free Cash Flow vs. Net Earnings
PepsiCo generates significant cash flow, which is vital for its operations and dividend payments.
Net Income (2024): $9.58 billion
Cash from Operations (TTM): $11.76 billion
Free Cash Flow (2024): $7.53 billion
Cash from operations consistently exceeds reported net earnings, demonstrating the quality of its income. Free cash flow is lower due to necessary capital expenditures, but the company manages its dividend well relative to the substantial cash generated by the business.